## Facts

- Bank of Cochin Ltd. (issuer) issued an irrevocable letter of credit, at its customer’s request, in favor of St. Lucia Enterprises, Ltd. (beneficiary) for an aluminum scrap shipment.
- Manufacturers Hanover Trust Co. (confirming bank) was asked to advise the credit and add its confirmation; the credit incorporated UCP 290.
- The credit required specified shipping and insurance documents, including an insurance policy/certificate referencing a particular cover-note number.
- St. Lucia presented documents to MHT that appeared facially compliant but contained arguable discrepancies (e.g., beneficiary name omission of “Ltd.” and a cover-note number mismatch).
- MHT examined the documents, treated them as complying, and honored the draft by paying St. Lucia; it then forwarded the documents to Cochin.
- No goods were shipped; the documents were forged and St. Lucia disappeared.
- When Cochin received the documents, it notified MHT of discrepancies and instructed MHT not to pay, but payment had already occurred.
- Cochin did not return the documents to MHT and did not state it was holding them at MHT’s disposal as contemplated by UCP procedures.
- Cochin sued MHT to recover the amount paid and debited to Cochin’s account; both sides moved for summary judgment on largely undisputed facts.

## Issues

1. Whether the confirming bank wrongfully honored the letter of credit by paying against documents that allegedly failed to strictly comply with the credit’s terms.
2. Whether the issuing bank’s failure to comply with UCP notice and document-disposition duties (returning documents or holding them at the confirming bank’s disposal) barred it from asserting discrepancies against the confirming bank.
3. Whether beneficiary fraud, absent bad faith or notice by the confirming bank, shifts loss to the confirming bank despite the independence principle.

## Decision

- Cochin’s motion for summary judgment was denied.
- MHT’s motion for summary judgment was granted and the complaint was dismissed.
- The court held MHT’s honor was not wrongful as against Cochin under the UCP-governed, document-focused credit relationship.
- The court further held Cochin was precluded from rejecting the documents because it did not timely and properly follow UCP procedures for rejection and document handling.

## Legal Principles

- Letters of credit are independent of the underlying sales transaction; banks deal in documents, not goods.
- Under UCP practice, a confirming bank may honor upon facially regular documents; minor, formal variances may be treated as insufficient to defeat compliance in inter-bank dealings.
- UCP rules require an issuing bank, upon deciding to reject, to give prompt notice of discrepancies and to return the documents or hold them at the confirming/remitting bank’s disposal; failure may operate as acceptance or estoppel.
- A confirming bank is not liable for beneficiary fraud absent evidence of bad faith, notice of fraud, or unreasonable document examination.

## Conclusion

The court allocated the fraud loss to the issuing bank because the confirming bank honored facially regular documents under the UCP, and the issuer’s failure to return or hold the documents at the confirmer’s disposal, as required by UCP procedures, barred later rejection based on discrepancies.


Bank of Cochin, Ltd. v. Manufacturers Hanover Trust Co., 612 F. Supp. 1533 (S.D.N.Y. 1985)