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Lustrelon Inc. v. Prutscher

Decided: February 25, 1981.


On appeal from Superior Court, Chancery Division, Bergen County.

Seidman, Antell and Lane. The opinion of the court was delivered by Seidman, P.J.A.D.


[178 NJSuper Page 131] This is an appeal from an adverse summary judgment by a foreign bank which honored a letter of credit upon presentment by the beneficiary of a sight draft and document purportedly in

compliance with the letter and then sought reimbursement from the issuing bank in New Jersey. The summary judgment declared the letter of credit cancelled and permanently enjoined the New Jersey bank from making payment of the draft. The principle issue involved is whether, as the foreign bank contends, it is entitled to reimbursement because the document submitted conformed to the terms of the letter of credit and any alleged fraud or contractual breach with respect to the document or the underlying transaction did not affect the bank's obligation to pay.

On March 1, 1976, Peoples Trust of New Jersey, now United Jersey Bank (UJB), issued an irrevocable letter of credit in the amount of $166,000 for the account of Lustrelon, Inc. The beneficiary named therein was "Messrs. Johann Prutscher, Vienna" (Prutscher). The letter of credit was addressed to Creditanstalt Bankverein of Vienna, Austria (Credit), as the confirming bank. It was issued in connection with a contract entered into between Lustrelon and Prutscher on February 19, 1976.

Lustrelon is a New Jersey corporation engaged in the manufacture and sale of plastic products. Prutscher, whose place of business was in Vienna, was the holder of a patent on corner interlock joints for plastic furniture elements sold under the trademark of "Logo." Prutscher agreed to provide Lustrelon the molds and tools required to manufacture the elements and granted Lustrelon "the sole and exclusive right and license under Licensor's Know-how and Licensor's Patent Right" to manufacture and sell "The System" during the period of the contract. Lustrelon agreed to pay Prutscher royalties in accordance with the schedule set forth in the contract and, in addition, undertook

The guarantee, termed "irrevocable," was intended "to cover possible loss by damage [to] or physical loss of these tools" and obligated Lustrelon to pay Prutscher

. . . the total amount or any part thereof upon receipt of the first written request and assigned [ sic ] certified statement from Messrs. Johann Prutscher, Vienna, to the bank confirming failure of Lustrelon to return moulds on first written demand from Messrs. Johann Prutscher, Vienna, and without further investigation of the legal situation to Messrs. Johann Prutscher, Vienna. The relevant sum will be remitted within a period of 14 days after receipt of such request to a bank account to be named by the beneficiary hereunder.

Lustrelon complied with the requirement by having UJB issue the letter of credit referred to hereinabove, the proceeds of which would be available to Prutscher by a sight draft "accompanied by documents specified below":

Against a signed certified statement from Messrs. Johann Prutscher, Vienna, confirming failure of Lustrelon, Inc. to return molds as per contract dated February 19, 1976 on first written demand from Messrs. Johann Prutscher, Vienna.

The letter of credit was expressly made subject to the "Uniform Customs and Practice for Commercial Documentary Credits fixed by the International Chamber of Commerce (1974 Revision) Publication 290" (UCP). Credit confirmed the letter of credit and sent a written acknowledgment of its confirmation to UJB.

After receiving the tools and molds from Prutscher, and encountering difficulties in their use, Lustrelon wrote to Prutscher in August 1976 complaining of defects in the system and expressing a desire to terminate the contract and return the molds. Prutscher requested Lustrelon to return the molds via shipping agents in New York engaged for that purpose by Prutscher in early October. The molds were delivered to the agents and were ultimately received by Prutscher in Vienna on or about November 22, 1976.

On November 19, 1976 Prutscher presented to Credit a written demand for payment under the letter of credit, with instruction to remit the amount into its account in the Gewerbe-und-Handelsbank in Vienna. The demand was accompanied by Prutscher's sight draft for $166,000 and the following statement ". . . duly signed and confirmed by our [Prutscher's] Company":

We, Messrs. Johann PRUTSCHER, Diefenbachgasse 35, 1150 Vienna, Austria, confirm the failure of LUSTRELON, INC. to return moulds as per Contract dated 19th February 1976, on first written demand from us.

Upon receipt of the draft and statement from Credit, UJB informed Credit by telex message dated November 29, 1976 that the draft "does not bear your endorsement and drawn to our order." UJB also advised Credit that Lustrelon was applying to the court in New Jersey for an injunction against payment and, since a period of 14 days was allowed for settlement, suggested that no action be taken "until we advise you of court decision." On December 1 another telex message from UJB notified Credit that Lustrelon had obtained an order restraining payment by UJB, that further proceedings were scheduled for December 21 and that a copy of the order was being forwarded. Credit responded on December 2 that it was forwarding a duly endorsed replacement draft notwithstanding the acceptance by all bankers in this country of drafts in the form originally presented. UJB was further informed that Credit's confirmation of the letter of credit "is an independent undertaking of our bank and therefore is not subject to any decisions of a court at your end," and that Credit would "have to effect payment on December 13, 1976 at the latest" and "must claim cover from you for our payment made under the irrevocable l› confirmed by us according to your instructions."

Lustrelon cabled Credit on December 5 that the molds had been returned to Prutscher "and accordingly any statement or certificate to the contrary is false." Referring to the restraining order, Lustrelon advised Credit to "withdraw demand and draft against United Jersey Bank" since "you have no greater rights as alleged confirming bank [and] . . . any payment by you is at your sole risk and responsibility."

On December 6 UJB dispatched another telex message to Credit calling its attention to its counsel's advice that "beneficiary's statement dated November 19 not in proper form since not certified in accordance with terms of credit would you revert to this matter." The next communication, on December 14, was a letter from Credit to UJB reminding it of Credit's "independent obligation towards Messrs. ...

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