## Facts

- Continental Time Corporation (Continental) sold watches in a transaction calling for payment by an irrevocable letter of credit in the approximate amount of $236,000.
- The issuing bank was Credit Suisse, which agreed to pay Continental upon Continental’s timely presentation of the letter of credit and specified shipping documents.
- The letter of credit was irrevocable, meaning Credit Suisse’s payment obligation could be cancelled or revoked only if all required parties agreed.
- Merchants Bank of New York (Merchants) was Continental’s bank and, acting for Continental, presented the letter of credit and accompanying shipping documents to Credit Suisse as a documentary draft and requested payment.
- Credit Suisse rejected the presentation because an airbill included in the supporting documents did not list the airports of departure and arrival, making the documents nonconforming.
- Because the letter of credit remained irrevocable and in effect, Continental retained the ability to correct the discrepancy and resubmit compliant documents.
- Without Continental’s permission or instructions, Merchants purported to revoke the letter of credit on Continental’s behalf and authorized Credit Suisse to seek payment directly from the buyer (outside the letter-of-credit payment undertaking).
- The letter of credit was treated as revoked and became ineffective, and the buyer refused to provide replacement payment.
- Continental received no payment for the shipment and sued Merchants for negligence and for violations of duties under the Uniform Commercial Code (UCC) and the Uniform Customs and Practice for Documentary Credits (UCP). Continental moved for summary judgment.

## Issues

1. Whether a bank acting for a beneficiary may revoke or authorize cancellation of an irrevocable letter of credit without the beneficiary’s consent after the issuer rejects documents for a discrepancy.
2. Whether the bank’s unauthorized revocation and shift away from letter-of-credit payment exposes the bank to liability for the beneficiary’s resulting loss under negligence principles and applicable commercial rules (including the UCC and incorporated UCP terms).

## Decision

- The court granted Continental’s motion for summary judgment.
- The court concluded that Merchants acted without authority when it revoked the irrevocable letter of credit and permitted Credit Suisse to look instead to the buyer for payment, eliminating Continental’s letter-of-credit protection.
- The court held Merchants liable for Continental’s loss resulting from the unauthorized revocation.

## Legal Principles

- An irrevocable letter of credit cannot be revoked or cancelled unilaterally; cancellation requires the agreement required by the credit’s terms and applicable letter-of-credit customs.
- A bank that handles a beneficiary’s letter-of-credit presentation acts with duties of ordinary care and must follow the beneficiary’s instructions in responding to rejection, discrepancies, and subsequent handling.
- When documents are rejected for nonconformity, the beneficiary generally retains the opportunity—while the credit remains in force—to cure discrepancies and make a conforming presentation; an intermediary bank must not extinguish that opportunity without authorization.
- A bank that, without authority, revokes an irrevocable letter of credit and substitutes a different payment method (such as direct payment by the buyer) may be liable when the beneficiary is left unpaid.

## Conclusion

The court entered summary judgment for Continental because Merchants, without Continental’s consent, revoked an irrevocable letter of credit after a discrepancy was identified, replaced the credit’s payment protection with a request for payment from the buyer, and thereby caused Continental to go unpaid for its watch shipment.


Continental Time Corp. v. Merchants Bank of New York, 459 N.Y.S.2d 396 (1983)