Voest-Alpine Trading USA Corp. v. Bank of China

[Editor’s Note: The casebook excerpt erroneously identifies Chase Manhattan Bank as the defendant in the case title. The correct defendant’s name is Bank of China.] In June 1995, Voest-Alpine Trading USA Corporation (Voest) (plaintiff) sold a chemical to the Jiangyin Foreign Trade Corporation (JFTC) (defendant), a Chinese company. JFTC provided Voest with a letter of credit from the Bank of China (BOC) to secure payment. The letter of credit provided that BOC would pay Voest once Voest delivered the chemical to JFTC and presented certain specified documents to BOC pursuant to the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce, Publication No. 500 (UCP 500). Upon delivery to JFTC, Voest presented documents to the Texas Commerce Bank (TCB) to forward to BOC. TCB noted that Voest’s documents did not strictly comply with the letter of credit’s requirements but instructed TCB to send the documents anyway because Voest believed that any discrepancies were immaterial. BOC received Voest’s documents on August 9. On August 11, BOC advised TCB via telex that Voest’s documents contained discrepancies from the letter of credit’s requirements and that it would ask JFTC whether JFTC nevertheless would allow payment. On August 15, TCB responded on Voest’s behalf that the claimed discrepancies were not a proper basis to deny payment. On August 19, BOC refused payment. In October, Voest sued BOC for payment. After a bench trial, the district court found in Voest’s favor, ruling that BOC did not refuse payment within the seven-day window required by UCP 500 and thus waived any right to dishonor the letter of credit. Per the district court, the August 11 telex was only a status report, and not a payment refusal, because the telex did not explicitly state that BOC was rejecting Voest’s documents and left open the possibility that JFTC would waive the purported deficiencies. The district court further determined that BOC did not conclusively refuse payment until August 19, which was too late under UCP 500. The district court based its rulings on, among other things, expert testimony that, under UCP 500 and international banking practices, the telex’s statement that JFTC might waive the claimed deficiencies introduced an ambiguity that prevented the telex from being a payment refusal. The expert also noted that up to half of all letter-of-credit payment requests contained discrepancies that were waived. BOC appealed, arguing that its August 11 telex was a payment refusal and noting that two TCB employees understood the August 11 telex to have been a payment refusal.