Court Opinion

ID: 6995158
Source: CourtListenerOpinion
Date Created: 2022-07-24 03:31:56.711444+00
Date Added: 2024-06-11T16:09:44.627714
License: Public Domain

KEARSE, Circuit Judge,
dissenting in part:
I respectfully dissent from so much of the majority’s decision as affirms the granting of summary judgment dismissing the claim of plaintiff Hamilton Bank, N.A. (“Hamilton”), for a declaratory judgment that defendant Kookmin Bank (“Kook-min”) is not entitled to collect on the letter of credit dishonored by Hamilton. I am not persuaded, on the present record, taken in the light most favorable to Hamilton as the party opposing summary judgment, that that claim may be resolved as a matter of law.
I am in agreement with the majority that in initially rejecting the letter of credit, Hamilton failed to comply with the requirement of Uniform Customs and Practice for Documentary Credits (“UCP”) that a notice of rejection must promptly “state all discrepancies in respect of which the bank refuses the documents.” UCP Art. 14(d)(ii) (1993). Thus, while Kookmin’s presentation of documents without the required telex gave Hamilton the right to dishonor the letter of credit for that reason, the failure to specify that reason in timely fashion deprived Hamilton of the right to rely on the missing telex as a basis for dishonor.
However, as the majority acknowledges, citing Boston Hides & Furs, Ltd. v. Sumitomo Bank, Ltd., 870 F.Supp. 1153 (D. Mass.1994) (“Boston Hides”), the UCP’s seven-day limitations period for dishonoring a letter of credit based on defects appearing on the face of the presented documents does not apply to the issuing bank’s right to recover for a fraud that is latent. I find that case instructive as well with respect to the assertion of latent fraud as a defense against a claim for wrongful dishonor.
In Boston Hides, the beneficiary of a letter of credit sued the issuing bank and confirming bank (the “Banks”) for wrongful dishonor. The issuing bank, in dishonoring the letter, had given a reason that was specific but, the court ruled, improper. “In defending th[e] suit, however, the Banks uncovered information which suggested that] Boston Hides’ presentment included false documents.” 870 F.Supp. at 1158. The court noted that the UCP’s provision precluding an issuing bank from relying on discrepancies to justify dishonoring a letter of credit unless it notifies the remitting bank of the claimed discrepancies without delay “do[es] not, however, relate to the effect, if any, of delay on the assertion of a forgery or fraud claim or defense,” id. at 1162 (internal quotation marks omitted). The court stated that where the UCP is silent or ambiguous, the court looks to the Uniform Commercial Code, so long as it is consistent with the UCP, and that “[u]nder Section 5-114(2) of the Uniform Commercial Code, a court of appropriate jurisdiction may enjoin hon- or or uphold dishonor by an issuing bank where the bank has been advised that documents submitted pursuant to a letter of credit are fraudulent.” 870 F.Supp. at 1164. On the theory that “[w]here a beneficiary submits false documents, ... the defect is latent, not apparent from the face of the material presented,” and that “a party who has knowingly submitted false documents to the issuer presents a *97classic case of a party with unclean hands,” the Boston Hides court reasoned that “[t]o preclude the Banks for failure to assert such an intentional ‘discrepancy which they could not have discovered ‘without delay’ would improperly punish them for [the beneficiary’s] wrongful conduct and not for their own error.” 870 F.Supp. at 1163 (internal quotation marks omitted). Thus, the court concluded that “[a]lthough the Banks’ dishonor, based on the [cited] discrepancy, was improper, denial of payment is nonetheless justified because of the plaintiffs submission of false documents.” Id. at 1167. There being no genuine dispute that a latent fraud had occurred, the court granted summary judgment in favor of the issuing and confirming banks.
In Bank of Cochin, Ltd. v. Manufacturers Hanover Trust Co., 808 F.2d 209 (2d Cir.1986) (“Cochin ”), the issuing bank was likewise the victim of a latent fraud. It conveyed the terms and conditions of the letter of credit to a confirming bank; the beneficiary gave the confirming bank fraudulent documents, and the confirming bank paid the beneficiary (who promptly disappeared with the money) and debited the account of the issuing bank. When the issuing bank thereafter received and examined the documents, it found facial discrepancies and quickly asked the confirming bank not to make payment, but it delayed specifying the precise nature of the noncomplying defect for 12-18 days. The issuing bank sued the confirming bank for wrongful honor of the letter of credit. This Court held that the nearly two-week delay precluded the issuing bank’s suit to recover the funds from the confirming bank. I note that in Cochin, however, the beneficiary “had perpetrated a fraud on both banks,” id. at 211 (emphasis added).
In the present case, Hamilton asserts that there was latent fraud, and there is evidence that the documents Kookmin submitted to Hamilton included two that were forgeries. The beneficiary of the letter of credit was Sung-Jin Trading Company, whose principal was Jin Kon Kim (collectively “Kim”). The letter of credit called for, inter alia, an authenticated telex; it also stated that “any other condition should be in accordance with ‘option contract’, signed by applicant [identified in the option contract as Hamilton’s customer] and beneficiary dated may 31, 1996.” The documents Kookmin presented to Hamilton included “special instructions” and an option contract on which Hamilton’s customer’s signature had been forged; the forged contract included a provision that did not appear in the authentic option contract and allowed variations in, inter alia, the quantity and destination of the goods to be delivered. The district court “reeog-nize[d] that there is evidence in the record supporting” Hamilton’s claim “that the special instructions and option contract were forgeries.” Hamilton Bank, N.A. v. Kookmin Bank, 44 F.Supp.2d 653, 659 & n. 52 (S.D.N.Y.1999).
From the decisions in Boston Hides and Cochin, it would appear to be material whether Kookmin was complicitous in the fraud. Hamilton, in support of its contention that Kookmin did not act in good faith but rather had unclean hands and thus should not be allowed to recover, adduced evidence that when Kim initially attempted to negotiate the letter of credit, Kookmin rejected that attempt because of the absence of the authenticated telex; that when Kim renewed his attempt to negotiate the letter of credit, still without the telex, but this time with the forged documents, Kookmin contacted Hamilton’s advising bank but did not ask whether the new documents made the telex unnecessary; that despite having no prior relationship with Kim, Kookmin negotiated the letter of credit and paid Kim $1.5 million *98(minus its commission) without requiring any security; that Kim and the Kookmin manager in charge of the transaction had at least one clandestine meeting; and that after rejection by Hamilton, Kookmin made no significant attempt to collect from Kim.
I view Boston Hides and Cochin, read together, as indicating that where the issuing bank has not properly dishonored the letter of credit, it is entitled to defeat enforcement of the letter on the ground of a latent fraud if the party seeking enforcement of the letter of credit was complici-tous, but not if that party was an innocent victim of the fraud. I view Hamilton’s evidence as sufficient to present a triable issue as to whether Kookmin was complici-tous in the submission of the fraudulent documents. I thus conclude that summary judgment dismissing Hamilton’s claim for a judgment declaring that it is not obligated to pay Kookmin on the letter of credit was inappropriate.