Banamex Wins Appeal in Letter of Credit Case

September 19, 2006

The Appellate Division of New York Supreme Court, First Department issued an opinion ordering summary judgment to be granted in favor of Cleary Gottlieb client Banamex in a suit against Société Générale for dishonor of a $36 million letter of credit issued by Société Générale in favor of a Mexican beneficiary and confirmed by Banamex. The beneficiary drew on the letter of credit and received payment from Banamex, but Société Générale refused to reimburse Banamex because Société Générale’s customers obtained ex parte injunctions purportedly preventing payment from Mexican courts.

The New York trial court found that the demand by the beneficiary fully conformed to the terms of the letter of credit, but denied Banamex’s summary judgment motion because the court believed that the place of payment of the letter of credit was Mexico, and that it was consequently required to grant comity to the Mexican injunctions. The First Department reversed, ruling that because the letter of credit provided that it was governed by New York law, place of performance or other contacts with Mexico were irrelevant, and that it was erroneous as a matter of law to rely on the Mexican injunctions as a defense to payment of a conforming demand under New York’s strong public policy enforcing New York letters of credit according to their terms. The First Department also held that even under traditional comity analysis, no comity should be afforded to non-final orders of a foreign court. In thus precluding attempts by disappointed parties to letter of credit transactions from using foreign injunctions to prevent payment of letters of credit governed by New York law, the Court reaffirmed New York’s primacy as the world’s center for international banking transactions.