SOUND OF MARKET STREET v. Continental Bank Intern., Civ. A. No. 84-3922.

• Decision Date: 11 December 1985
• Docket Number: Civ. A. No. 84-3922.
• Citation: 623 F. Supp. 93
• Parties: SOUND OF MARKET STREET, INC. v. CONTINENTAL BANK INTERNATIONAL.
• Court: U.S. District Court — Eastern District of Pennsylvania

623 F. Supp. 93

SOUND OF MARKET STREET, INC. v. CONTINENTAL BANK INTERNATIONAL.

Civ. A. No. 84-3922.

United States District Court, E.D. Pennsylvania.

December 11, 1985.

Richard M. Meltzer, Philadelphia, Pa., for plaintiff.

Peter F. Marvin, Philadelphia, Pa., for defendant.

MEMORANDUM and ORDER

JOSEPH S. LORD, III, Senior District Judge.

Plaintiff alleges that the defendant negligently failed to advise it in a timely manner that a letter of credit had been issued in its behalf, thereby causing plaintiff to lose the benefit of the bargain the letter of credit was meant to facilitate. Defendant has filed a motion for summary judgment claiming that it did not have a legal obligation to advise plaintiff of the letter of credit in a timely fashion. For the reasons that follow defendant's motion will be denied.

In May, 1982, plaintiff purchased blank audio cassette tapes from Dalco of Cyprus. Plaintiff then obtained permission from Dalco to return approximately 165,000 tapes for a refund of $125,500, which would be paid through a letter of credit. A letter of credit was issued by the Bank of Cyprus at the request of Dalco with plaintiff as the beneficiary. On August 6, 1982, the defendant received a telex from the Bank of Cyprus instructing it to prepare the letter of credit and to notify plaintiff that the credit had been issued. One of the credit's terms required shipment of the tapes on or before August 31, 1982. Although the defendant had reviewed and prepared the letter of credit by August 9, 1982, it did not send it to plaintiff until August 18, 1982, when it was sent by regular U.S. mail. Plaintiff did not receive the letter of credit until August 25, 1982, when it was too late for plaintiff to comply with the August 31 shipping date. As a result plaintiff was unable to return the tapes, suffering a loss, the extent of which has not yet been determined.

Article V of the Uniform Commercial Code defines an advising bank as a "bank which gives notification of the issuance of a credit by another bank." 13 Pa.C.S.A. § 5103(a) (1984). Defendant, in this case, was clearly serving as an advising bank. The explicit obligations assumed by an advising bank under the U.C.C. are very limited. Unless otherwise specified, an advising bank does not assume any obligation to honor drafts drawn or demands for payment made under the credit. 13 Pa.C.S.A. § 5107(a). An advising bank, however, does assume an obligation for the accuracy of the information it transmits to the beneficiary of the credit. Id.; H. Harfield, Letters of Credit 10-11 (1981).

Defendant argues that since the information provided to plaintiff about the credit was accurate and since the U.C.C. does not explicitly impose any other obligations on an advising bank, its untimely notification did not violate any legal obligation defendant had toward the plaintiff.

Article V of the U.C.C., however, "deals with some but not all of the rules and concepts of letters of credit as such rules or concepts ... may hereafter develop." 13 Pa.C.S.A. § 5102(c). Simply because obligations are not explicitly imposed on an advising bank by the Code does not mean that obligations which promote the underlying purposes and policies of the Code may not be imposed when fact patterns unforeseen by the Code's drafters are brought before the court. See id. at comment 2.

Letters of credit help facilitate transactions between merchants located in different countries who want to avoid legal entanglements with one another as much as possible even if their deal goes sour. A seller who is also the beneficiary of a letter of credit is guaranteed payment by the bank that issued the credit so long as the seller complies with the credit's terms. If a foreign buyer reneges on the deal or becomes insolvent while the goods are in transit, the seller is still assured of payment without having to sue the buyer in a foreign jurisdiction. Similarly, a buyer need not...