Mago Int'l v. LHB AG - 833 F.3d 270 (2d Cir. 2016)

Rule:

An issuing bank, or a bank that acts as confirming bank for the issuer of a letter of credit, takes on an absolute duty to pay the amount of the credit to the beneficiary, so long as the beneficiary complies with the terms of the letter. However, in order to protect the issuing or confirming bank, this absolute duty does not arise unless the terms of the letter have been complied with strictly. Adherence to this rule ensures that banks, dealing only in documents, will be able to act quickly, enhancing the letter of credit's fluidity. Literal compliance with the credit therefore is also essential so as not to impose an obligation upon the bank that it did not undertake and so as not to jeopardize the bank's right to indemnity from its customer. Therefore, in determining whether to pay, the bank looks solely at the letter and the documentation the beneficiary presents to determine whether the documentation meets the requirements in the letter.

Facts:

In 2011, Mago—a company based in New York—entered into a contract to sell chicken, beef, and other meat products to NTP Genita ("Genita"), a company based in Pristina, Kosovo. As is common in international transactions, in order to ensure it received payment, Mago required Genita to obtain a standby letter of credit (SLOC), issued by Bank for Business, a Kosovar bank, and confirmed by LHB AG ("LHB"). Under the terms of the letter, if Genita failed to pay Mago within forty-five days after the date of an invoice, Mago could present a defined set of documents to LHB and obtain payment on the SLOC. Among the documents LHB required was a "photocopy of B/L evidencing shipment of the goods to the applicant." Mago shipped twelve containers of products to Genita under four invoices, designated 199(1-5), 199(6-7), 208(1-2), and 208(3-5), respectively. Genita defaulted on all four invoices. Mago tendered its first set of documents to LHB on September 19, 2012, including two unsigned bills of lading for each of the two 199 invoices. LHB rejected this tender for, inter alia, not containing signed bills of lading. Mago's second tender cured other deficiencies identified by LHB but contained the same unsigned bills of lading for the two 199 invoices. LHB again rejected the tender, emailing Mago's managing director that the unsigned bills of lading were not in conformity with the terms of the letter. Mago's third tender occurred on October 8, 2012, the last day possible to submit a demand for payment. As all previous tenders had done, this one contained signed bills of lading for the 208 invoices—but instead of unsigned bills of lading for the 199 invoices, Mago provided two telexes from the shipping company, Mediterranean Shipping Company ("MSC"). These telexes announced that MSC had retained the original, signed bills of lading in its files and authorized release of the shipments to Genita without the latter presenting the original bill of lading. App. 160, 166. LHB rejected this tender as well. Finally, on October 11, 2012, Mago tendered a set of documents containing signed bills of lading for each invoice. App. 172-84. LHB rejected this tender as untimely. App. 185. Mago then filed suit in the Southern District alleging wrongful dishonor of the SLOC and naming both LHB and Bank for Business as defendants. On April 1, 2015, both LHB and Mago cross-moved for summary judgment. The District Court issued its order granting LHB's motion and denying Mago's motion on August 4 and entered judgment on August 6. Mago timely appealed from both the order and the judgment.

Issue:

Did the submission of unsigned copies of bills of lading comply with the letter's requirement that Mago provide a "photocopy of [a bill of lading] evidencing shipment of the goods to the applicant"?

Answer:

No

Conclusion:

The court held that the district court properly granted summary judgment to LHB based upon Mago’s failure to strictly comply with the conditions of an SLOC because LHB was entitled to reject Mago’s presentations where the SLOC explicitly required evidence of shipment in the bill of lading, the bill of lading at issue required a signature for confirmation of shipment, and neither the unsigned bills of lading nor the telexes tendered by Mago in its presentations to LHB satisfied the requirement of strict compliance.