Hanil Bank v. PT.

Bank Negara Indonesia (Persero)

I.

Background of Case

PT. Kadeco Electronics Indonesia (Kadeco ) applied to BNI to issue a letter of credit for benefit of Sung Jun Electronics Co. Ltd. (Sung Jun). BNI issued L/C (Letter of Credit) but misspelled the name of the beneficiary as Sung Jin Electronics Co. Ltd. The beneficiary did not request amendment of the L/C to change the name of the beneficiary. Hanil purchased the L/C and the document submitted by Sun Jun. Later, BNI rejected the documents tendered by Hanil and refused to pay under the L/C based on 4 reasons, namely: the different name of beneficiary under the L/C; the packing list did not show the content required by L/C; fails to comply with the export quality; the bill of lading should be ocean bill of lading. Hanil brought the case to the New York State court. Hanil as the plaintiff and BNI as the defendant. II. Issues

1. If the issuing bank is responsible? 2. If the advising bank is responsible? 3. Who should be responsible in this matter? III. Rules

Uniform Customs and Practice for Documentary Credits (1993 Revision) International Chamber of Commerce Publication No. 500 (the UCP)

Beyene v. Irving Trust Co. Mutual Export Corp. v. Westpac Banking Corp.

IV.

Analysis

1. If the issuing bank is responsible? The issuing bank in this case is BNI who issued letter of credit. The issuing bank is in breach of contract and breach of Uniform Customs and Practice for Documentary Credits (1993 Revision) International Chamber of Commerce Publication No. 500 (the UCP) concerning unjust enrichment and breach of implied covenant of good faith and fair dealing. The issuing bank is responsible under the reasons improper documents, the issuing bank is under the obligation to honor the draft on a credit is independent of the performance underlying the contract. The issuing bank should be in good faith to properly check the letter of credit that had been issued. The misspelled of beneficiary name is crucial that it effected the reimbursement of payment could not be made, so the error was made by issuing bank. The payment of letter of credit should be made in accordance to a proper document. Thus the issuing bank should recover any damages that resulted from refusal of payment. The issuing bank should in good faith in conducting the business, that should consider other document that prove the typographical error may render the amendment of letter of credit. Thus, the issuing bank should properly check other document and in this case the issuing bank should check other document of delivery of goods which had been given to the issuing parties to receive the payment. The refusal of payment is neglected the essence of fair dealing in business on how the exception of term should be applied as in this matter only typological error in one sentence, therefore the payment should be made. 2. If the advising bank is responsible? The issuing bank refer to obligation under Uniform Customs and Practice for Documentary Credits (1993 Revision) International Chamber of Commerce Publication No. 500 (the UCP) . the duty of the issuing bank to pay upon the submission document which appear on their face to conform to the terms and conditions of letter of credit is absolute, the advising bank should consider the condition of letter of credit, the name of beneficiary is important to make payment, and this standard is absolute. The advising bank rely on the good faith basis if the facts available is the letter of credit which in different name of beneficiary. The beneficiary is the best position to determine whether a letter of credit meets the needs of the underlying commercial transaction.

The issuing bank refer to the case Beyene v. Irving Trust Co. and Mutual Export Corp. v. Westpac Banking Corp. that the misspelled of beneficiary name under the letter of credit could be a proper basis to refuse the payment of letter of credit. The document to payments should be held if there is a properly identify the beneficiary of the letter of credit. fairness of commercial transaction should be function of the reasonable expectation. Even if it is obvious from the examination of the letter of credit and the document that different in the beneficiarys name result from the typographical error, the error does not justify to dishonor the letter of credit itself. Thus, the advising bank should be responsible and the payment for typological error of the beneficiary name cannot be conducted.

3. Who should be responsible in this matter? In this case, the plaintiff was affected by the mistyping conducted by the defendant who has the he obligation to issue the letter of credit. The document concerning the name of beneficiary should be properly examined by the defendant as the issuing bank, however the plaintiff did not check the beneficiary name thus the different name of beneficiary in the letter of credit resulted the plaintiff has no right to claim any damages and payment. The court only can rely in the actual basis of the document available. The fulfillment of standard banking practice is significantly affect the payment that need to go through the operating procedure. The only test applicable in this matter is whether the plaintiff has sufficiently checks document for an issuing banks, whether an experienced and knowledgeable document checker would find the document checker would find that the documents are in compliance.

V.

Conclusion

The issuance of payment for letter of credit should have a proper document. The essential matter is concerning the beneficiary name stipulates should be correct, if it is not correct or there is a typological error the payment of letter of credit possible to be refused because it need to conform with term and condition of letter of credit is absolute in which the document of issue payment

should under the same beneficiary name. in this case, the issuing bank is held not liable to refuse the payment considered different name in the letter of credit and the document issue by the advising bank.