Generale Bank v. Czarnikow-Rionda Sugar Trading, Inc.

Citations: 47 F. Supp. 2d 477; 1999 WL 219905Docket: 98 CIV 6731(RLC)

Court: District Court, S.D. New York; April 16, 1999; Federal District Court

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In the case Generale Bank v. Czarnikow-Rionda Sugar Trading, Inc., plaintiff Generale Bank (GB) seeks summary judgment for reimbursement of a $2 million advance it issued under a letter of credit for defendant Czarnikow-Rionda Sugar Trading, Inc. (CZR). The dispute arises from a credit facility agreement, which permitted GB to issue letters of credit for CZR, and specifically concerns an advance made on November 28, 1997, secured by a letter of credit in favor of Dine S.A. CZR acknowledges its obligation to repay the interest on the advance but contests the repayment of the principal, claiming an oral agreement established its liability on an 80% non-recourse basis. GB disputes this claim, stating that no such agreement exists and that both the letter of credit and related agreements explicitly prohibit oral modifications. The court's analysis will consider whether there are genuine factual disputes that preclude summary judgment, applying the standard that requires viewing evidence in the light most favorable to the non-moving party. Overall, the outcome hinges on the interpretation of the agreements and the validity of CZR's oral modification claim.

CZR contends that affidavits regarding an oral agreement indicate factual disputes that warrant denying GB's motion for summary judgment. CZR emphasizes that GB typically prepares a written confirmation before any advance and requests the court to delay summary judgment under Rule 56(f), F.R. Civ. P., until further discovery can reveal whether such a confirmation exists. 

The legal framework for this case involves three distinct agreements in a letter of credit transaction: 1) the underlying purchase and sale contract between the buyer and seller; 2) the application agreement between the buyer and its bank detailing the terms for the letter of credit; and 3) the letter of credit itself, where the bank promises payment to the seller upon the presentation of conforming documents. Each of these agreements is treated as separate and independent contracts, a principle underscored by case law which differentiates letters of credit from underlying contracts. 

The issuing bank's obligation to honor a draft is independent of the underlying contract's performance, and letters of credit are also distinct from the contracts between buyers and issuing banks. GB's attempt to invoke letter of credit law in its contract with CZR is flawed, as the dispute pertains specifically to reimbursement terms rather than the letter of credit itself, rendering letter of credit law inapplicable. The reimbursement terms are governed by traditional contract law, and the relationships are defined by documents such as the Letter of Credit Agreement and Security Agreement. Under New York General Obligations Law, any written agreement stating it cannot be altered orally requires any changes to be executed in writing and signed by the relevant parties.

CZR asserts that the 1997 credit facility is the sole governing document for reimbursement terms and claims it was orally modified, despite the absence of a "no oral modification" clause in that facility. However, the 1997 facility's paragraph 5(c) supersedes the previous 1992 agreement but maintains the enforceability of prior related documents, including the Letter of Credit Agreement, which explicitly states that any amendments must be in writing. This interrelationship means the prohibition on oral modifications from the Letter of Credit Agreement applies, reinforcing the requirement for written confirmation of any changes. CZR's argument regarding an oral modification does not withstand scrutiny under New York contract law, which mandates that interrelated documents be read together. CZR has not produced any written evidence suggesting it is not fully responsible for repayment as per standard letter of credit practices. Furthermore, CZR confirmed its liability through a letter requesting GB to record a loan of $2 million. GB has denied having any documentation supporting CZR's claim of an 80% non-recourse advance. Given these circumstances and GB's sworn denials, the court finds no merit in delaying summary judgment for further discovery. Consequently, the court grants summary judgment in favor of GB.