Bombay Industries, Inc. v. Bank of New York

649 N.Y.S. 2d 784 (N.Y. App. Div. 1996)

Contacting the applicant for waiver does not constitute consent by the issuer to waive any discrepancy.

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To finance the purchase of a shipment of shirts and shorts, buyer caused the issuance of a commercial credit in favor of seller. Issuer was applicant's principal creditor and had previously opened a series of credits on applicant's account. Issuer had developed a "pattern" by which it had waived discrepancies in presentations under a portion of those prior credits. After the goods were shipped, beneficiary presented documents on 21 December and demanded payment under the credit. The credit required "Shipment From New Jersey Port" but the bill of lading identified New York as the shipment's origin and omitted the actual fax number of the contact person which was apparently required by the credit. On 23 December, the same day that it was determined that the presentation was discrepant, a decision was made in the issuer's letter of credit department to contact the applicant, seeking waiver, which was obtained. On 30 December, however, before the beneficiary was informed, the account officer (responsible for the credit decision as opposed to the operation's aspect) instructed the letter of credit department not to waive the discrepancies. Thereupon, notice of dishonor was given.

After negotiations between issuer and beneficiary, the documents were returned on 18 January and resubmitted on 19 January. On 23 January, the resubmitted documents were rejected as discrepant because the latest date for presentation of the transport documents had passed and the bill of lading had been altered without any authentication from the shipper. Subsequently, issuer, as secured creditor for applicant, declared applicant in default and proceeded to liquidate applicant's assets.

The beneficiary then brought an action for wrongful dishonor against the issuer and moved for summary judgment. The trial court granted the beneficiary's motion for summary judgment, finding that the issuer had not acted in a neutral manner since it was also a creditor of the applicant and that the issuer had engaged in a pattern of behavior whereby it had waived such discrepancies. The trial court went on to state that the issuer did not have complete discretion as to whether to waive discrepancies and must instead act in a neutral manner. On appeal, reversed.

Briefing:

1. Waiver: The appellate court, in a one paragraph opinion, held that the receipt by the issuer of the applicant's approval to waive the discrepancies "did not alter its separate right to require strict compliance with the letter of credit." In a dissent, Kupferman, J., concurred with the trial court's evaluation of the facts but expressed the opinion that the discrepancy was not major and the bank should have acted in a neutral manner instead of substituting its own agenda.

Views:

Despite some discouraging interpretations of UCP Articles 13 and 14 (UCP Article 16) by the New York courts, it is clear that sound L/C jurists remain. Treatment of discrepant presentations is certainly complex and the beneficiary retains important rights under the UCP even in a discrepant presentation. By seeking waiver from the applicant, however, the issuer does not commit itself to waive the discrepancies. Unlike an amendment addressed to the beneficiary which binds the issuer upon its advice, a request for waiver addressed to the applicant is a step in a process. The final step, typically, would be the issuer's own internal review. If the credit situation of the applicant has changed in the meantime, the issuer has no obligation under the credit to waive the requirement of strict compliance. Happily, this court recognized that proposition.

The Draft ISP makes this proposition more explicit. Draft ISP 1997 Rule 5.05 states that "[contacting the applicant for waiver does not constitute consent by the issuer to waive any discrepancy."