Whether the applicant has a duty to investigate the shipping documents and to notify the defects in the case where the issuing bank has paid the letter of credit in advance and sent the transport documents to the applicant (negative)

The provision on prompt defect and loss of right at the time of violation of the duty to notify the beneficiary of the issuing bank under the Uniform Customs and Practice for Documentary Credits is related to the date of the settlement of the letter of credit amount. On the other hand, the relationship between the applicant and the issuing bank is a separate contract that differs in nature from the L/C transaction between the issuing bank and the beneficiary, and in principle, the L/C transaction between the opening bank and the beneficiary is regulated separately from the underlying relationship between the applicant and the opening bank and the issuing bank. Thus, the above provision cannot be applied to the case where the issuing bank paid the letter of credit amount in advance and sent the transport

Articles 15 and 16 of the Uniform Customs and Practice for Documentary Credits (UCP 4, 1983), Article 13 of the Uniform Customs and Practice for Documentary Credits (UCP 5, 1993)

[Plaintiff-Appellant] Plaintiff 1 and 17 others (Law Firm Gyeong, Attorneys Park Jong-soo et al., Counsel for plaintiff-appellant)

Korea

Korea Exchange Bank (Attorney Lee Jae-soo et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 96Na38171 delivered on June 17, 1997

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. The summary of the judgment below is as follows.

A. The plaintiff, through the Korea National Defense Headquarters under its control, intended to import the instant weapons from the European Commoncom, and requested the defendant to open the letter of credit on November 26, 1990 for the payment of the price. Accordingly, on December 28, 199, the defendant opened an impossible letter of credit (hereinafter the letter of credit of this case) with the beneficiary Epico, U.S. dollars 3,617,80 U.S. dollars (hereinafter the letter of credit of this case), and on December 23, 1991, the plaintiff deposited 3,617,880 U.S. dollars which was equivalent to the payment for the letter of credit of this case with the defendant on December 23, 199, after deducting the payment for the letter of credit of this case from the above 3,617,880 U.S. dollars's notice from the Paris Bank on December 16, 1992.

B. According to the above facts, the issuing bank, despite a defect in the shipping documents received by the defendant from the advising bank which does not coincide with the terms and conditions of the letter of credit, made the letter of credit payable to the beneficiary. This violates the terms and conditions of the settlement of the letter of credit of this case between the plaintiff and the defendant. Thus, the defendant is obligated to return the deposit for the letter of credit deposited

C. On the other hand, when the applicant received the shipping documents from the issuing bank, he/she was obligated to inspect them without delay and notify the issuing bank of the fact that it does not comply with his/her instructions. In this case, the plaintiff received the shipping documents from the defendant on December 29, 1992, and notified the defendant of the fact that the payment of the letter of credit was made in advance and the payment was made, and then did not raise any objection within a reasonable period of time after receiving the shipping documents from the defendant. Thus, the plaintiff could not assert any disagreement, regardless of whether or not he/she was aware of the defects of the shipping documents, and therefore, it is difficult to accept the plaintiff's claim for the return of the deposit for the letter of credit within a reasonable period of time after eight months from the receipt of the shipping documents.

2. However, we cannot accept the above determination by the court below.

A. According to the court below's findings, the defendant sent the above shipping documents to the beneficiary through the Paris Branch on December 16, 192, and ordered the beneficiary to pay the letter of credit of this case to the Paris Branch on December 21, 199, despite any defect that is inconsistent with the terms and conditions of the letter of credit of this case, the plaintiff paid the letter of credit of this case to the beneficiary at the Paris Branch on December 21, 199 (the records showed that the above letter of credit of this case was paid to the beneficiary at that time). The plaintiff unilaterally violated the payment terms and conditions of the letter of credit of credit and sent the above shipping documents to the beneficiary on the 29th day of the same month after the defendant unilaterally paid the letter of credit of this case to the beneficiary. Thus, even if the defendant unilaterally sent the shipping documents to the applicant after paying the letter of credit of credit of this case in violation of the payment terms and conditions as acknowledged by the court below, it cannot be seen that there is no special agreement between the plaintiff and the defendant to the same purport.

B. The lower court seems to be reasonable on the basis of the provisions of the Uniform Customs and Practice for Documentary Credits for Documentary Credits for the Fourth Amendment.

In other words, according to Article 16 (b) through (e) of the Uniform Customs and Practice for Documentary Credits (UCP 4), the court below stated that the issuing bank received the documents and then examined whether the documents conform to the terms and conditions of the credit, and, if it judged that the documents do not conform to the terms and conditions of the credit on its face, the issuing bank shall determine whether to accept or refuse to accept the documents within a reasonable time, and if the issuing bank decides to refuse to accept the documents, it shall without delay notify the bank or beneficiary who sent the documents, of the discrepancy, and if the issuing bank fails to comply with the above provisions, the issuing bank shall lose its right to raise a clean that the documents are not in compliance with the terms and conditions of the credit. Although the issuing bank did not specify a specific period of time in the fourth regulation, the issuing bank shall be bound by Article 13 (b) of the Uniform Customs and Practice for Documentary Credits 13 of the 193 Amendment, the issuing bank shall be bound to promptly accept the documents within 7 days from the issuing bank's 5th date of receipt of the documents.

In light of the reasoning of the court below, the Uniform Customs and Practice for Documentary Credits provides for the duty of prompt notification of defects in the L/C transaction between the issuing bank and the beneficiary and the provision on the loss of rights in the event of the violation. However, each of the above provision is related to the duty of notification prior to the settlement of the L/C amount. Meanwhile, the relationship between the L/C applicant and the beneficiary is not only a separate contract that differs in essence from the L/C transaction between the issuing bank and the beneficiary, but also a L/C transaction between the issuing bank and the opening bank and the beneficiary are regulated separately from the underlying relationship between the applicant and the opening bank. Thus, the court below cannot be justified in its conclusion that the above provision governing the relationship between the applicant and the opening bank and the beneficiary should be applied in the case of this case where the issuing bank pays the L/C amount in advance

In other words, it is not reasonable for the court below to consider the above provisions of the Uniform Customs and Practice for Documentary Credits as the basis for the judgment above.

C. In light of Articles 96 and 97 of the Foreign Capital Procurement Management Regulations enforced by the Ministry of National Defense under the Plaintiff’s control, the lower court held that the Plaintiff’s acceptance of the transport documents as the applicant cannot justify the mistake that the Plaintiff did not raise any objection after examining the transport documents within a reasonable period of time after receiving them. However, such foreign capital procurement management regulations merely provide for the Plaintiff’s internal relationship to regulate the business process of the employee in charge, and they cannot be applied to the external legal relationship between the Plaintiff and the Defendant. In addition, the above provision cannot be deemed to be applicable to the case where the applicant receives the transport documents after receiving the transport documents from the issuing bank. Thus, the above foreign capital management regulations cannot be used as the basis for determining whether the applicant received the transport documents.

D. In the transaction of the original L/C, the issuing bank should not pay the L/C amount if there is any disagreement between the shipping documents and the conditions of the L/C within the specified period, and if the Defendant settled the L/C amount, it cannot refuse the Plaintiff’s claim to return the L/C amount. Moreover, it is not reasonable to reject the Plaintiff’s claim to return the L/C amount against the Plaintiff’s duty of notification as stated in the judgment of the court below, and to reject the Plaintiff’s claim to return the L/C deposit against the Defendant who paid the payment in violation of the terms and conditions of the L/C payment between the Plaintiff and the Plaintiff, because it did not ignore the basic principles of the contractual relationship between the parties, nor did it be justified.

E. Meanwhile, although the reasoning of the judgment of the court below is unclear, it is difficult to view that the plaintiff accepted the shipping documents and did not raise any objection to the payment of the letter of credit within a reasonable period of time after being aware of the fact that the payment of the letter of credit was made and the payment was made, or that the plaintiff did not give up the right to claim the return of the deposit for the letter of credit. Furthermore, according to the reasoning of the judgment of the court below, the plaintiff did not agree with the above notice of shipment, the port of arrival, and the consignee, and even according to the record, the defendant sent the shipping documents to the plaintiff without stating that the defect was not known, and it is not clear whether the plaintiff had known that the plaintiff had known the defect, and there was no other evidence to support that the plaintiff did not pay for the letter of credit amount or set up a waiver of the deposit money. Thus, as recognized by the court below, the plaintiff could not be found to have given up the shipping documents within a considerable period of time due to the delay to claim the return of the deposit to the beneficiary.

F. Ultimately, the lower court did not err by misapprehending the legal principles on the legal relations between the applicant for the letter of credit and the issuing bank, its notification, and the return of deposit on the letter of credit, thereby affecting the conclusion of the judgment

3. Therefore, without examining the remaining grounds of appeal, we reverse the judgment below and the case is remanded to the court below. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Jong-sik (Presiding Justice)