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106 - Case laws - Applicant Vs. Beneficiary
Hyosung America, Inc.v. Sumagh Textile Co., Ltd. 934 F. Supp. 570 (S.D.N.Y. 1996). By applicant against beneficiary for fraudulent presentation of documents. |
| Principals: Plaintiff/Applicant/Assignee: Hyosung America, Inc.; Defendant/Beneficiary/Seller: Sumagh Textile Co., Ltd.; Issuer: The Commercial Bank of Korea, Ltd.; Reimbursing Bank: First Commercial Bank of Taiwan; Transaction: Series of textile purchases. LC: Commercial credit of unknown amount. Silent as to whether L/C is subject to UCP. Rule: The failure of an applicant to inspect documents and goods which it was permitted to do by contract with the assignor prevents it from claiming reasonable reliance on any misrepresentation in presented documents. History: Broker entered into a contract with assignee/factor to assign purchase orders from customers for textile goods and broker was to arrange purchase of those goods from various suppliers. To assure payment for a specific textile purchase, assignee/ applicant obtained a letter of credit payable to the supplier/beneficiary. The letter of credit provided that the fabric content of the textiles sold would be 65% rayon and 35% wool, reflecting the buyer's requirements. When the beneficiary shipped nonconforming goods, but drew upon the basis of allegedly forged documents fraudulently describing the fabric contents, the issuer paid. The applicant brought an action against the supplier/beneficiary on various counts related to the underlying contents including a claim of fraud relating to letters of credit. The court granted the beneficiary's motion for summary judgment on the fraud count. Briefing: 1. Beneficiary fraud in action by applicant: The court noted that the applicant had numerous opportunities to review the content of the fabric and to refuse further to amend the credit. In granting beneficiary's motion for summary judgment, the court stated that the beneficiary would have discovered the true fiber content of the goods and could have avoided payment had it exercised its rights under the underlying contract and revised details available to it. As a result, the requisite element of reasonable reliance necessary for common law fraud was not present. Views: In this multi count complaint, it is useful that there was no allegation of breach of warranty. The question between applicant and beneficiary once the L/C has been paid is, simply put, whether there was fraud in the underlying transaction. If the L/C had not been paid, falsified documents may well have justified dishonor or injunctive relief. |