## Facts

- A U.S. seller agreed to sell 1,000 metric tons of styrene monomer to a Chinese buyer for about $1.2 million.
- The buyer obtained a documentary letter of credit from an issuing bank, governed by UCP 500, requiring payment upon presentation of specified documents.
- After the market price dropped, the buyer sought a price concession; the seller refused, shipped the goods, and presented documents through the advising bank.
- The advising bank noted discrepancies and presented the documents “on approval,” allowing the buyer to decide whether to waive discrepancies.
- The issuing bank received the documents on August 9, 1995.
- On August 11, the issuing bank telexed that there were seven discrepancies and that it would contact the buyer about acceptance.
- On August 15, the seller demanded payment, asserting the discrepancies were not grounds for dishonor.
- On August 19, the issuing bank sent a telex stating the discrepant documents “may have us refuse to take up the documents” under UCP 500 article 14(b).
- The buyer refused to waive discrepancies; the issuing bank returned the documents on September 18, 1995.
- The seller sued for payment under the letter of credit; after a bench trial, the district court found the issuing bank failed to timely and unequivocally dishonor and awarded damages and attorney’s fees.

## Issues

1. Whether the issuing bank’s August 11 telex constituted a timely, effective notice of refusal under UCP 500 article 14(b).
2. Whether the trial court properly relied on expert testimony and banking practice to interpret and apply UCP 500’s notice-of-dishonor requirements.

## Decision

- The court of appeals affirmed the judgment for the beneficiary.
- The August 11 telex was not a clear and unambiguous dishonor; it was a status report noting discrepancies while seeking the applicant’s position.
- The first communication reasonably indicating refusal was the August 19 telex, which was outside UCP 500’s seven-banking-day period measured from receipt of documents.
- Because the issuing bank failed to provide timely, unequivocal notice of dishonor specifying discrepancies, it waived the right to dishonor on those discrepancies and was obligated to honor the credit.
- The district court’s factual finding that August 11 was not a final refusal was not clearly erroneous; its interpretation of UCP 500 was correct.

## Legal Principles

- Under UCP 500 article 14(b), an issuing bank must, within seven banking days after receiving documents, decide to honor or refuse; if refusing, it must give notice specifying discrepancies.
- A dishonor notice must be clear and unambiguous; a message that reports discrepancies while indicating consultation with the applicant does not constitute final refusal.
- Failure to provide timely, unequivocal notice results in waiver of discrepancy-based defenses and binds the issuing bank to honor the credit.
- Courts may consider expert testimony and trade usage to apply UCP standards to customary banking communications and to determine whether a notice would be understood as a dishonor.
- The issuing bank’s obligation under a letter of credit is independent of the underlying sales contract; procedural noncompliance with UCP dishonor requirements can obligate payment despite documentary irregularities.

## Conclusion

The court held that the issuing bank’s initial telex did not clearly refuse payment within UCP 500’s required period, so the bank waived its right to dishonor based on discrepancies and remained obligated to honor the letter of credit.


Voest-Alpine Trading USA Corp. v. Bank of China, 288 F.3d 262 (5th Cir. 2002)