T.C. Ziraat Bankasi v. Standard Chartered Bank

Red Rock Commodities, Ltd. (Red Rock) sought to buy steel from a Swiss merchant and sell the steel to an Israeli merchant. Standard Chartered Bank (Standard) (defendant) agreed to make a loan to Red Rock for the steel purchase. At Red Rock’s request, Standard issued an irrevocable line-of-credit for $2,107,000 in favor of the Swiss seller. In return, the Swiss seller presented Standard with a negotiable bill of lading covering the shipment of 10,520.4 metric tons of steel billets on a vessel in Poland bound for Israel. Standard paid the Swiss seller with the money it had agreed to loan to Red Rock. Standard held the bill of lading while it awaited payment from the Israeli merchant, Ram Metals and Building Industries, Inc. (Ram Metals). To pay for the steel, Ram Metals took out a loan from Park Avenue Bank for $2.5 million. As security for this loan, T.C. Ziraat Bankasi (Ziraat) (plaintiff) issued a standby letter of credit in favor of Park Avenue Bank for $2.5 million. As security for the letter of credit, Standard endorsed and transferred the negotiable bill of lading for the steel to Ziraat. However, the bill of lading was fraudulent. The carrier never issued a bill of lading, and the steel billets did not exist. Thus, Ram Metals defaulted on its loan from Park Avenue Bank, and Ziraat was forced to pay out under the standby letter of credit. Ziraat sued Standard for breach of warranty. Standard claimed it was unaware of the fraud and was not responsible for the genuineness of the document as a mere intermediary. Standard moved for summary judgment. The trial court granted standard’s motion. Ziraat appealed, and the intermediate court of appeals affirmed. Ziraat appealed, and New York’s highest court of appeals granted review.