[1] Where a beneficiary issues a bill of exchange in excess of the limit of the letter of credit in a documentary credit transaction where the partial issuance of a bill of exchange is permitted, and some shipping documents are forged and sold to another bank, whether the issuing bank may refuse the demand for reimbursement of the letter of credit by the negotiating bank on the ground of the repayment of the letter of credit to the negotiating bank

[2] The law applicable to the legal relationship between the issuing bank and the negotiating bank for the repayment of the letter of credit (=the location of the issuing bank)

[3] Where the applicable law of principal claim is a foreign corporation, whether Article 3(1) of the Act on Special Cases Concerning the Promotion, etc. of Legal Proceedings can be applied in ordering the payment of damages for delay of payment obligation under the credit (negative)

[1] In light of the provisions of Articles 9(a)4, 10(d), and 14(a), etc. of the International Commercial Meeting 5th Amendment of the Uniform Customs and Practice for Documentary Credits, 193 (UCP 500), the issuing bank cannot be exempted from its duty to redeem the letter of credit, unless there are special circumstances where the negotiating bank, which purchased the bill of exchange with the issuing bank, requests the issuing bank to redeem the letter of credit on the ground that it did not comply with the terms and conditions of the letter of credit and conditions of the credit, and that it was not able to negotiate the letter of credit with the issuing bank's reasonable care to redeem some of the shipping documents that it purchased with another bank in good faith on the grounds that the beneficiary had purchased the bill of exchange in excess of the limit of the amount permitted to issue the letter of credit. If the negotiating bank, which purchased the bill of exchange with the issuing bank's knowledge of the bill of credit, was able to negotiate the bill of credit and other shipping documents that it purchased with another bank in good faith on the letter of credit.

[2] Article 26(1) of the Private International Act provides that a contract shall be governed by the law of the country most closely related to the contract in a case where the parties did not choose the applicable law in a legal relationship containing foreign elements. Article 26(2)3 of the Act stipulates that the applicable law of delegated affairs is presumed to be the law of the country most closely related to the contract at the time when the parties’ obligation to perform delegated affairs was concluded. However, the negotiating bank which purchased a bill of exchange, etc. based on the letter of credit purchases the bill by the right of the issuing bank’s authorization. However, it is only purchased as its own business act according to its own account and purchased the letter of credit as the performance of delegated affairs for the issuing bank. Thus, the determination of the applicable law to the legal relationship of the letter of credit repayment between the issuing bank and the negotiating bank is not subject to the application of Article 26(2)3 of the Private International Act, which is a presumption of the applicable law to the performance of delegated affairs, and it is the law of the country where the issuing bank’s obligation to pay the letter of credit is most closely related to the contract.

[3] The damages for delay are paid as damages for delay of the performance of an obligation, which is incidental to the original obligation, so it shall be determined by the governing law governing the original obligation. Meanwhile, statutory interest rate under Article 3(1) of the Act on Special Cases Concerning Expedition, etc. of Legal Proceedings is applied with respect to the remedy by litigation proceedings for the purpose of facilitating litigation, but its substance is to determine the scope of damages for nonperformance of a monetary obligation. Therefore, it cannot be deemed that the statutory interest rate under Article 3(1) of the Act on Special Cases Concerning Expedition, etc. of Legal Proceedings has a procedural legal character.

[1] Articles 9(a)4, 10(d), and 14(a) of the Uniform Customs and Practice for Documentary Credits (UCPS) / [2] Article 26(1) and (2)3 of the Private International Act / [3] Article 3(1) of the Act on Special Cases Concerning the Promotion, etc. of Legal Proceedings

[1] Supreme Court Decision 84Da696 delivered on May 28, 1985 (Gong1985, 893), Supreme Court Decision 96Da37879 delivered on August 29, 1997 (Gong1997Ha, 2832), Supreme Court Decision 2000Da63691 Delivered on June 28, 2002 (Gong2002Ha, 1784), Supreme Court Decision 200Da60296 Delivered on October 11, 2002 (Gong202Ha, 2663) / [3] Supreme Court en banc Decision 95Da34385 delivered on May 9, 197 (Gong197, 197Hun-Ba, 197) 30Hun-Ba304 delivered on March 24, 200, Constitutional Court en banc Decision 2003Hun-Ba304 delivered on March 24, 2002.

Busan Bank (Law Firm Cheonghae, Attorneys Seo Seo-soo et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 201Do1448 delivered on May 1, 201

Jeju Bank (Law Firm Samyang, Attorneys Noh Jeong-soo et al., Counsel for the defendant-appellant)

Busan High Court Decision 2007Na13503 Decided December 19, 2008

All appeals are dismissed. The costs of appeal are assessed against each appellant.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the grounds of appeal by the ASEAN Franchi Co., Ltd. on the grounds of appeal by the bank

A. In full view of the provisions of Article 9(a)4, Article 10(d), and Article 14(a) of the Uniform Customs and Practice for Documentary Credits (UCP 200), the issuing bank cannot be exempt from its duty of redemption on the letter of credit if the negotiating bank, which purchased the bill of exchange with the issuing bank's knowledge of the bill of credit on the ground that it did not comply with the terms and conditions of the letter of credit and its 6th amendment. If the negotiating bank did not request the issuing bank to redeem the bill of credit, the issuing bank cannot be exempt from its duty of reimbursement on the letter of credit because it purchased the bill of credit more than 100, 196Da3789, August 29, 197, 200, 206, 206, 300,000,0000 won, issued the letter of credit to the issuing bank for such reasons that it purchased the bill of credit on the letter of credit with the issuing bank's knowledge of the bill of credit.

B. The reasoning of the lower judgment and the evidence duly admitted by the lower court reveal the following.

(1) The first L/C of this case, which was issued by the ASEAN F&C Co., Ltd. (hereinafter “Defendant N&C”) with the beneficiary as Sung F&C Co., Ltd. (hereinafter “sex”) is a free-purchase letter allowing the shipment and the issuance of a bill of exchange in installments, with the maximum limit amount to US$ 871,500,00. As a document necessary for the purchase, the "bill of lading" is demanded by the consignor with the consignor’s direction.

(2) On October 7, 2005, the Defendant Jeju Bank (hereinafter “Defendant Jeju Bank”) purchased bills of exchange and shipping documents of USD 244,639.18 issued in relation to the First Credit. However, among the shipping documents purchased by the Defendant Jeju Bank, the bill of lading was forged by arbitrarily stating the name of the issuer using a bill of lading, which was received for the internal custody of the company from the Defendant Han New Shipping Co., Ltd., the carrier, and the upper right side of the bill of lading, stating that “Non-Ngo” was impossible to distribute, while the shipper’s title stated “Non-Ngoti” in the main text of the bill of lading and “the consignor’s name” in the consignee column, and the consignee column stated “B/L” in the bill of lading form, and the latter part of the bill is an endorsement.

Meanwhile, the first letter of credit of this case states that "the purchasing bank must state its purchase amount on the back side of the letter of credit," but Defendant Jeju Bank did not state its purchase on the back of the original copy of the first letter of credit of this case.

(3) Upon receipt of a claim for the letter of credit based on the purchase of the above bill of exchange and shipping documents from the Defendant Jeju Bank, the Defendant Yong-si Bank paid USD 244,639.18 to the Defendant Jeju Bank.

(4) The Defendant issued a bill of exchange, etc. under the first letter of credit of this case. The Plaintiff, on October 17, 2005, purchased respectively the bill of exchange and shipping documents of USD 750,789.78, the amount of the bill of exchange and shipping documents of USD 108,01,000 on October 18, 2005, without being aware of the prior purchase by the Defendant bank, on the back of the original copy of the first letter of credit of this case.

(5) In relation to the Plaintiff’s claim on the letter of credit, the Defendant Libera Bank rejected the payment of USD 244,639.18, which is a part of the first letter of credit payment, on the ground that it had already been paid to the Defendant Jeju Bank.

C. First of all, the direction-type and blank endorsement-type bill of lading required by the first letter of credit of this case can be freely circulated by the holder of the bill of lading to acquire the ownership of the cargo if the consignor transfers it by means of endorsement in blank on the back of the bill of lading. While the forged bill of lading is stated in the consignee's instructions, the bill of lading contains the phrase "Non-go" that it is impossible to prohibit endorsement or distribute at the right upper end of the bill of this case, and it is inconsistent with the terms required by the first letter of credit of this case. The phrase "Non-goti" stated in the bill of this case indicates that it cannot purchase "no" or "no distribution". Thus, if there is such indication, it can be easily known even bank costs without special knowledge that it is contrary to the "bill of lading allowing free distribution" at least if there is no special knowledge about the transaction of goods.

Meanwhile, in the case of a documentary credit transaction in which a bill of exchange is allowed in installments, there is no evidence to deem that the negotiating bank had a practice to confirm the balance of the credit limit to the issuing bank. In this case, in the original of the documentary credit, it is reasonable to expect that the negotiating bank stated the purchase amount on the back of the documentary credit if there is a prior negotiating bank, which is a financial institution, the general bank member would have stated the purchase amount on the face of the documentary credit. In addition, there is no evidence to deem that the Plaintiff either knew or could have known that the negotiating bank issued the documentary exchange in excess of the limit amount of the documentary credit, and that Defendant Jeju bank had purchased the documentary exchange, etc. on the back of the original documentary credit. Therefore, the Plaintiff cannot be said to have erred by believing that there was no indication

In sum, it is reasonable to deem that the defendant Symvia Bank merely paid the letter of credit to the defendant Jeju Bank by negligence that there is a defect that is inconsistent with the conditions of the letter of credit in the bill of lading presented by the defendant Jeju Bank. On the other hand, the plaintiff purchased the bill of exchange, etc. in good faith without negligence. In light of the above legal principles, in such a case, the defendant Symvia Bank cannot refuse the plaintiff's claim for the payment of the letter of credit on the ground

D. In addition, it is argued that the defendant Symvia Bank paid the letter of credit upon the claim for reimbursement of the letter of credit amount by the defendant Symna Bank, the applicant for the letter of credit, was lawfully conducted according to the intention of ratification of the defect in the terms and conditions of the letter of credit by the Domba Sussho Corpo Corporation (hereinafter "Domna"), so the payment effect of the letter of credit can be asserted against the plaintiff. However, according to the records, it is only recognized that the defendant Symna Bank was aware of whether it accepted the defect in the number of defects in the bill of lading to Domba, and there is no evidence to support that Domvia bank paid the letter of credit by giving up its right to assert that it is inconsistent with the terms and conditions of the letter of credit even though Domna bank stated in the bill of lading's bill of lading.

E. Thus, the court below's decision that accepted the plaintiff's claim for the payment on the letter of credit without examining the validity of the part that the defendant NitB bank knew or could have known that there was a defect that is inconsistent with the terms and conditions of the letter of credit in the bill of lading presented by the defendant Jeju bank.

2. Plaintiff’s ground of appeal

A. As to the ground of appeal on the governing law in the claim against the defendant Nituse Bank

Article 26 (1) of the Private International Act provides that in the case where the parties do not choose the applicable law in the legal relations containing foreign elements, the contract shall be governed by the law of the country most closely related to the contract, and in the case of Article 26 (2) 3, the applicable law of delegated affairs is presumed to be the law most closely related to the law of the location of the principal office, etc. at the time when the contract is concluded by the party liable

However, a negotiating bank that purchases bills of exchange, etc. based on a letter of credit has purchased it by the power of the issuing bank of the letter of credit, but it does not purchase the letter of credit as its own business activity according to its own account and it does not purchase it as the performance of delegated affairs for the issuing bank. Thus, Article 26 (2) 3 of the Private International Law, which is a presumption provision of the governing law as to the performance of delegated affairs, cannot be applied to the determination of the governing law as to the legal relationship between the issuing bank and the negotiating bank of the letter of credit, and Article 26 (2) 3 of the Private International Law, which is a presumption provision of the governing law as to the performance of delegated affairs,

In the same purport, the court below held that the case where the plaintiff, a Korean corporation, is the negotiating bank of bills of exchange and shipping documents based on each of the instant letters of credit, and sought reimbursement of the letter of credit against the defendant Symvia Bank, which is the issuing bank of the above letter of credit, constitutes a legal relationship with foreign elements in light of the fact that each of the above letters of credit was established by the defendant Symvia Bank, a foreign corporation, and that each of the instant letters of credit was governed by the Uniform Customs and Practice for Documentary Credits, since there was no other agreement on the governing law, the governing law of the claim for reimbursement of the letter of credit between the plaintiff and the defendant Symvia Bank is justified

B. As to the claim against the Defendant Nitusea Bank about the interest rate for delay damages

Since damages for delay are paid as damages for delay of obligation, which are incidental to the original obligation, it shall be determined by the governing law governing the original obligation. Meanwhile, the statutory interest rate provided for in Article 3(1) of the Act on Special Cases Concerning the Promotion, etc. of Legal Proceedings shall apply with respect to the remedy by litigation proceedings for the purpose of facilitating litigation, but its substance is to determine the scope of damages for nonperformance of monetary obligation (see, e.g., Supreme Court en banc Decision 95Da34385, May 9, 1997; Constitutional Court en banc Decision 97Hun-Ba49, Mar. 30, 200; Constitutional Court en banc Decision 2002Hun-Ga15, Apr. 24, 2003). Therefore, it cannot be deemed that the statutory interest rate provided for in Article 3(1) of the Act on Special Cases Concerning the Promotion, etc. of Legal Proceedings has a procedural nature.

In the same purport, the court below is justified in applying the Japanese law, which is the governing law of the original claim, instead of applying Article 3(1) of the Act on Special Cases Concerning the Promotion, etc. of Legal Proceedings, when ordering the defendant Smunii Bank to pay damages for delay of the payment obligation under the above

C. As to the ground of appeal against Defendant Jeju Bank

The right to claim damages due to nonperformance or tort is established when actual damage occurs, and whether actual damage occurred shall be determined objectively and reasonably in light of social norms (see, e.g., Supreme Court Decisions 92Da29948, Nov. 27, 1992; 2001Da22833, Jul. 13, 2001).

According to the reasoning of the judgment below, the court below rejected the plaintiff's claim against the defendant Jeju Bank on the ground that it did not constitute an infringement of the plaintiff's claim on the letter of credit due to such error, since the plaintiff's refusal of payment on the ground of exceeding the limit of the limit of the first letter of credit against the plaintiff on the plaintiff on the bill of exchange and forged bill of lading, even though the defendant Jeju Bank erred as alleged by the plaintiff at the time of the purchase of shipping documents such as the bill of exchange and forged bill of lading.

In light of the above legal principles and records, the above judgment of the court below is just, and it does not affect the conclusion that the plaintiff rejected the plaintiff's claim, as alleged in the grounds of appeal.

3. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against each appellant. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Hong-hoon (Presiding Justice)