Supreme Merchandise Co. v. Chemical Bank, 70 N.Y.2d 344 (1987)
A beneficiary’s interest in an executory negotiable letter of credit supporting an international sale of goods is not property of the beneficiary for purposes of attachment by a party in unrelated litigation.
Summary
Supreme Merchandise Co. sought to attach the assets of Iwahori Kinzoku Co. (Kinzoku), a Japanese company, held by Chemical Bank, to satisfy a judgment unrelated to a letter of credit issued by Chemical Bank. The letter of credit named Kinzoku as the beneficiary in a sale of goods. Supreme Merchandise served attachment orders on Chemical Bank. Before the attachment orders, two Japanese banks, Fuji Bank and Dai-ichi Kangyo Bank, negotiated drafts under the letter of credit and were later paid by Chemical Bank. The court held that Kinzoku’s interest in the executory letter of credit was not attachable “property” under CPLR 5201(b), emphasizing the importance of certainty and predictability in international letter of credit transactions.
Facts
Iwahori Kinzoku Co. (Kinzoku) was the beneficiary of an irrevocable letter of credit issued by Chemical Bank to support a sale of disposable lighters to Supreme Importers. Supreme Merchandise Co. had an unrelated money judgment against Kinzoku and sought to attach Kinzoku’s assets at Chemical Bank. Fuji Bank negotiated a draft for Kinzoku, unaware of the attachment order, and presented it to Chemical Bank, which accepted and paid the draft. Dai-ichi Kangyo Bank also presented a draft which Chemical bank accepted before the second attachment order. Supreme Merchandise served two orders of attachment on Chemical Bank, attempting to seize the funds from the letter of credit.
Procedural History
Supreme Merchandise commenced a proceeding against Chemical Bank to compel delivery of the letter of credit funds, arguing both attachment orders applied. Special Term ruled the beneficiary’s interest was attachable property. The Appellate Division reversed, holding the second order was too late as Chemical had already accepted the drafts. Regarding the first order, the Appellate Division held that CPLR 5201(b) and 6202 could not be read to authorize reaching a debtor’s contingent interest where it would impair the rights of third parties and raise doubts about the function of letters of credit. The New York Court of Appeals granted leave to appeal.
Issue(s)
1. Whether Kinzoku’s interest in the executory letter of credit constituted a “debt” or “property” within the meaning of CPLR 6214(d) such that it could be subject to attachment.
Holding
1. No, because the nature of Kinzoku’s interest, coupled with policy considerations concerning negotiable letters of credit in international sales, dictates that the interest is not “property” within the meaning of CPLR 5201(b).
Court’s Reasoning
The court reasoned that while CPLR 5201(b) allows enforcement of a money judgment against assignable property, the mere assignability of an interest does not automatically make it attachable property. The court distinguished this case from ABKCO Indus. v Apple Films, where a contract right to net profits was deemed attachable. Unlike the interest in ABKCO, Kinzoku’s interest was contingent on its own performance, specifically timely shipment of goods and presentation of conforming documents. The court emphasized the importance of letters of credit in international trade, noting that they provide certainty and predictability, inducing confidence in parties who rely on them. The court explained that strict adherence to the terms of the credit and the independence principle (separation from the underlying contract) are essential to the utility of letters of credit. Allowing attachment in this context would diminish confidence in the certainty and integrity of letters of credit in New York, potentially disrupting international transactions and harming third parties who rely on the credit. Quoting Equitable Trust Co. v Dawson Partners, the court noted the need for strict compliance with letter of credit terms: “There is no room for documents which are almost the same, or which will do just as well.”