United Commodities-Greece v. Fidelity Intern. Bank

• Decision Date: 04 April 1985
• Docket Number: P,COMMODITIES-GREEC
• Citation: 489 N.Y.S.2d 31,478 N.E.2d 172,64 N.Y.2d 449
• Parties: , 478 N.E.2d 172, 41 UCC Rep.Serv. 1377 UNITEDlaintiff, v. FIDELITY INTERNATIONAL BANK et al., Respondents, et al., Defendant, and Pillsbury Company, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 31

489 N.Y.S.2d 31

64 N.Y.2d 449, 478 N.E.2d 172, 41 UCC

Rep.Serv. 1377

UNITED COMMODITIES-GREECE, Plaintiff, v. FIDELITY INTERNATIONAL BANK et al., Respondents, et al., Defendant and Pillsbury Company, Appellant.

Court of Appeals of New York.

April 4, 1985.

Peter W. Flanagan, Richard H. Webber and John H. Allen, New York City, for appellant

Stephen Lew, New York City, for Fidelity Intern. Bank, respondent.

Mark P. Zimmett and Joanna Shally, New York City, for Trade Development Bank (France), respondent.

OPINION OF THE COURT

LYNCH ^*, Judge.

Defendant Pillsbury Company contracted to sell to the plaintiff 50,000 metric tons of corn destined for shipment from a Gulf of Mexico port to a Black Sea port and resale to the Soviet Union. To provide payment, plaintiff obtained two letters of credit, one by the defendant Trade Development Bank with the defendant Republic National Bank as advising bank, the other by Banque de la Mediterranee with the defendant Fidelity International Bank, the confirming bank. Payment on the letters has been refused. The propriety of this refusal has been raised by cross and counterclaims in this action in which United Commodities-Greece ultimately withdrew its complaint. The trial court found that the documents submitted by Pillsbury to trigger payment did not conform to the requirements of the letters. It ruled against Pillsbury and in favor of Republic and Trade Development Banks. It held, however, that Fidelity had waived any claim of nonconformity and it awarded judgment for Pillsbury against it, with judgment over to Fidelity against United Commodities. The Appellate Division, 99 A.D.2d 974, 473 N.Y.S.2d 10, modified by striking the judgment against Fidelity and the judgment over, and granting judgment in Fidelity's favor, holding that there had been no waiver on its part. We affirm.

Trade Development Bank seeks to raise as a threshold question whether that provision of the Appellate Division's order unanimously affirming the judgment in its favor may be appealed by Pillsbury. We decline to entertain the question since it has previously been decided (see, United Commodities-Greece v. Fidelity Intl. Bank, 62 N.Y.2d 884, 478 N.Y.S.2d 867, 467 N.E.2d 531).

Page one of each letter of credit specified the documents to be presented for payment, presupposing the loading of the corn on a vessel nominated by United Commodities prior to November 30, 1976. Following these requirements was a "Special Conditions" clause, activated by a failure to so nominate a vessel. It provided: "may draw, not before December 10, 1976, against this letter of credit upon presentation of a warehouse or dock receipt issued to order accompanied by a bank guarantee that beneficiary will load the goods on first demand of orderer and remit to the negotiating bank, free of charges, the covering Bill of Lading." The letters were to expire on December 15, 1976. United Commodities failed to nominate a vessel prior to November 30th.

Both respondent banks, Fidelity and Trade Development, argue that presentation of the page one documentation was required by the letters even though payment was sought under the eventuality provided for in the "Special Conditions". The trial court did not agree and neither do we. The letters are unambiguous. They express alternative payment procedures, the page one documents to be provided upon loading on a vessel nominated prior to November 30th, the "Special Conditions" documents to be triggered by the failure to nominate a vessel. If the parties intended the page one documents to be applicable to the "Special Conditions" eventuality, they could readily have included the necessary language. It is not the function of the court to insert such a provision (see, Janos v. Peck, 21 A.D.2d 529, 533, 251 N.Y.S.2d 254, affd. 15 N.Y.2d 509, 254 N.Y.S.2d 115, 202 N.E.2d 560; Frankel v. Tremont Norman Motors Corp., 21 Misc.2d 20, 22, 193 N.Y.S.2d 722, affd. 10 A.D.2d 680, 197 N.Y.S.2d 576, affd. 8 N.Y.2d 901, 204 N.Y.S.2d 146, 168 N.E.2d 822).

New York requires strict compliance with the terms of a letter of credit (see, Anglo-South Am. Trust Co. v. Uhe, 261 N.Y. 150, 84 N.E. 741; Eximetals Corp. v. Pinheiro Guimaraes, S.A., 73 A.D.2d 526, 422 N.Y.S.2d 684, affd. 51 N.Y.2d 865, 433 N.Y.S.2d 1019, 414 N.E.2d 399), rather than the more relaxed standard of substantial compliance (see, 6 Hawkland, Uniform Commercial Code Series § 5-114:03). The rule finds justification in the bank's role in the transaction being ministerial (see, Eximetals Corp. v. Pinheiro Guimaraes, S.A., supra ) and to require it to determine the substantiality of discrepancies would be inconsistent with its function. Strict compliance means that "the papers, documents and shipping directions must be followed as stated in the letter" (Anglo-South Am. Trust Co. v. Uhe, supra, at pp. 156-157, 84 N.E. 741). "No substitution and no equivalent, through interpretation or logic, will serve. Harfield, Bank Credits and Acceptances (5th Ed.1974), at p. 73, commends and quotes aptly from an English case: 'There is no room for documents which are almost the same, or which will do just as well.' Equitable Trust Co. of N.Y. v. Dawson Partners, Ltd., 27 Lloyd's List Law Rtps. 49, 52 (1926)." (Courtaulds North Am. v. North Carolina Natl. Bank, 528 F.2d 802, 806; see also, Eximetals Corp. v. Pinheiro Guimaraes, S.A., 73 A.D.2d, at p. 527, 422 N.Y.S.2d 684, supra.) Applying these standards, we hold that the bank guarantees provided by Pillsbury were fatally nonconforming to the "Special Conditions" because they omitted any obligation arising from a Pillsbury failure to "remit to the negotiating bank, free of charges, the covering Bill of Lading."

When United Commodities failed to nominate a vessel, Pillsbury, on December 6, 1976, delivered to Republic National Bank and Fidelity International Bank drafts on the letters of credit, warehouse receipts postdated to ...