Korea Export Insurance Corp. v. Audiobahn, Inc.

Mega Power, Inc. (Mega) agreed to ship goods from Korea to Audiobahn, Inc. (defendant), a corporation in the United States. To finance these shipments, Mega sold bills of exchange, underwritten by Korea Export Insurance Corporation (KEIC) (plaintiff) to Kookmin Bank (Kookmin). Mega also assigned its rights under its sales agreement with Audiobahn to Kookmin. The bills of exchange named Kookmin as payee and were payable following acceptance of the bills of exchange by Audiobahn. Audiobahn accepted the bills of exchange but failed to pay Kookmin or Mega, originally because of cash-flow difficulties and subsequently because of offsetting amounts allegedly owed by Mega to Audiobahn from prior disputes. KEIC, as the underwriter of the bills of exchange, paid Kookmin the amount Kookmin was owed pursuant to the bills of exchange. KEIC, invoking its subrogation and assignment rights, then sued Audiobahn to recover the amount KEIC paid Kookmin. The trial court found that Kookmin was a holder in due course (HDC) of the bills of exchange and that KEIC, as subrogee, stood in Kookmin’s shoes in terms of the right to be paid by Audiobahn. The trial court also found, however, that the letters of assignment between Mega and KEIC required KEIC to promptly notify Audiobahn of the assignment, even though Mega was contractually obligated to give that notice while KEIC simply had the option to do so. Neither Mega nor KEIC notified Audiobahn of the assignment. The trial court held that providing that notice was a condition subsequent to KEIC’s maintaining its HDC status and entered judgment for Audiobahn because the condition was not met. KEIC appealed.