3Com Corporation v. Banco Do Brasil, S.A. [1998]

3Com Corporation v. Banco Do Brasil, S.A.
No. 97 Civ. 3819 (SS), 2 F. Supp. 2d 452 (S.D.N.Y. 1998) [USA]

Topics: Notice of Termination; Evergreen LCs; Ambiguous Terms in a LC; Fraud in the Transaction

Type of Lawsuit: Applicant sues issuer for wrongful dishonor; cross-claim by issuer for fraud in the transaction.

Parties:
• Plaintiff/Beneficiary/Manufacturer – 3Com Corporation (Counsel: David Rabinowitz, Michael Evan Avidon, Michael J. Richter of Moses & Singer LLP)
• Defendant/Issuer – Banco Do Brasil, S.A. (Counsel: Francis S.L. Wang of Wang & Wang)
• Advising Bank – Bank of America
• Applicant/Authorized Brazilian Distributor – Comp Service Brazilian
• Distributor’s Purchasing Agent – Techtrade Export

Underlying Transaction: Distributing and licensing agreement to Brazilian distributor for computer hardware and software.

LC: Standby letter of credit for US$ 250,000. Subject to UCP500.

Decision: U.S. District Court for the Southern District of New York, Sotomayor, U.S.D.J., applying New York law, granted the plaintiff’s motion for summary judgment and denied defendant’s cross-motion for summary judgment.

Rationale: The issuer failed to provide the “clear and unequivocal” notice required to terminate the LC by the UCP and New York law. Furthermore, the ambiguities in the LC should be construed against the drafter, in this case the issuer. Finally, the law of New York requires that any actionable fraud in an LC transaction be intentional. The issuer failed to establish this.