transit, the seller is still assured of payment without having to sue the buyer in a foreign jurisdiction. Similarly, a buyer need not advance funds to a foreign seller and trust that the goods for which it has already paid will be shipped in a timely and appropriate manner. If the foreign seller does not comply with the terms specified in the letter of credit, the buyer is assured that the bank it hired to issue the credit will not pay the seller.
Accuracy in letter of credit transactions is, therefore, of utmost importance. A letter of credit is a contract between the issuing bank and the beneficiary of the letter of credit that is separate and distinct from the contract between the buyer and the seller that the letter of credit is meant to facilitate. The beneficiary gives the bank the documents called for by the letter and gets paid in return. "'The essential requirements of a letter of credit [, therefore,] must be strictly complied with by the party entitled to draw against the letter of credit, which means that the papers, documents and shipping descriptions must be as stated in the letter.'" Marino Industries v. Chase Manhattan Bank, N.A., 686 F.2d 112, 114 (2nd Cir. 1982) (citations omitted). Slight deviations between the documents presented and the documents called for in the letter have been held to justify a bank's refusal to pay the beneficiary. 686 F.2d at 114-15.
A beneficiary/seller, therefore, cannot prudently rely on what a buyer states will be the terms of a letter of credit. As regards the beneficiary, a letter of credit is not established until he receives the letter or an authorized written advice of its issuance. 13 Pa. C.S.A. § 5106(a)(2). If the beneficiary transports the goods before receiving the letter of credit, and its documents do not conform to the letter, it will not collect on the letter. In order to be paid, it will have to sue the buyer of the goods, something the letter of credit device was meant to avoid.
According to the defendant, an advising bank's only obligation is to be accurate when it notifies the beneficiary that a letter of credit has been issued in its behalf. According to this theory, if an advising bank completely fails to notify the beneficiary that the letter has been issued, it will not be liable. Similarly, if the advising bank holds onto a letter of credit until it expires, it again will not be liable. In neither instance has it transmitted inaccurate information to the beneficiary.
Defendant's position is obviously untenable. A beneficiary can suffer the same types of harm regardless of whether he gets inaccurate information about the letter of credit, untimely information or no information at all. In any of these hypothetical cases the deal can fall through and the seller must either look to a foreign buyer or to a negligent advising bank for the benefit of its bargain. If advising banks are liable for inaccurate statements regarding letters of credit, they should be liable for untimely statements as well. Cf. General Cable Ceat, S.A. v. Futura Trading, Inc., et al., No. 82 Civ. 1087 (RLC), slip op. (S.D. N.Y. January 17, 1983) (defendant serving as both advising and paying bank liable for negligent mishandling of documents submitted by letter of credit beneficiary).
An appropriate order follows.
AND NOW, this 11th day of December, 1985, it is hereby ORDERED that defendant's motion for summary judgment is DENIED.
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