## Facts

- Standard Chartered Bank financed its customer’s steel transaction and, in connection with that financing, received a negotiable bill of lading describing a shipment of steel billets from Poland to Israel.
- Standard relied on the bill of lading to pay the purported seller and treated the document as security for its customer’s indebtedness.
- The intended buyer’s payment was delayed; a substitute financing arrangement was created in which Park Avenue Bank loaned funds to the buyer.
- Ziraat issued a $2.5 million standby letter of credit in favor of Park Avenue Bank to secure repayment of that loan.
- Park Avenue Bank transmitted the loan proceeds to Standard, satisfying the original indebtedness.
- At the customer’s request, Standard endorsed and transferred the bill of lading to Ziraat to secure Ziraat in connection with its standby letter of credit exposure.
- The bill of lading was fraudulent; the carrier had not issued it and the described cargo did not exist.
- The buyer defaulted on the loan; Park Avenue drew on the standby letter of credit; Ziraat paid and then sued Standard for breach of warranty based on transfer of a fraudulent bill of lading.

## Issues

1. Whether Standard, when it endorsed and transferred the bill of lading to Ziraat as security after its own claim was satisfied, acted as a “mere intermediary” under UCC § 7-508.
2. If Standard was an intermediary, whether UCC § 7-508 displaced the UCC § 7-507 warranty of genuineness and limited Standard’s warranties to good faith, lack of knowledge of defects, and authority to transfer.

## Decision

- The New York Court of Appeals affirmed summary judgment for Standard and dismissal of Ziraat’s complaint.
- Standard qualified as a “mere intermediary” in the specific transaction in which it re-delivered the negotiated bill of lading to Ziraat.
- Because Standard was an intermediary, it did not warrant the bill of lading’s genuineness under UCC § 7-507.
- There was no triable issue that Standard acted in bad faith or with knowledge that the document was fraudulent; its warranties were limited to those specified in UCC § 7-508.

## Legal Principles

- Under UCC § 7-507, a transferor of a document of title generally warrants, among other things, the genuineness of the document, except as limited by UCC § 7-508.
- UCC § 7-508 provides that a party who re-delivers a duly negotiated negotiable document “as a mere intermediary” does not warrant overall genuineness; instead, it warrants only good faith, lack of knowledge of facts impairing validity, and authority to transfer.
- Intermediary status is determined with reference to the particular transfer at issue, not the entire commercial history of the document.
- In trade-finance chains, a bank that passes along a document as part of satisfying or rearranging financing obligations, without knowledge of defect and acting in good faith, may be treated as an intermediary under UCC § 7-508.

## Conclusion

The court held that Standard’s endorsement and transfer of the bill of lading to Ziraat occurred in an intermediary capacity under UCC § 7-508, limiting Standard’s warranties to good faith, lack of knowledge, and authority to transfer and barring Ziraat’s claim that Standard warranted the document’s genuineness.


T.C. Ziraat Bankasi v. Standard Chartered Bank, 84 N.Y.2d 480 (N.Y. 1994)