J. Zeevi and Sons, Ltd. v. Grindlays Bank (Uganda) Ltd., 37 N.Y.2d 220 (1975)
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An irrevocable letter of credit establishes an independent obligation of the issuing bank to the beneficiary, and the bank’s obligation is governed by the law of the jurisdiction with the greatest interest in the litigation, particularly when the letter of credit is to be honored in that jurisdiction.
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Summary
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J. Zeevi and Sons, Ltd. sued Grindlays Bank (Uganda) Ltd. to enforce an irrevocable letter of credit. The bank argued that Ugandan law, which prohibited the payment due to exchange control regulations, should govern. The New York Court of Appeals held that New York law applied because New York was the designated place of payment and had a strong interest in maintaining its status as a financial center. The court found that the bank’s repudiation of the letter of credit in New York constituted an anticipatory breach and that Ugandan exchange control regulations did not invalidate the bank’s obligation under New York law.
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Facts
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Hiram Zeevi & Company (Uganda) Ltd. deposited funds with Grindlays Bank (Uganda) Ltd. to establish an irrevocable letter of credit in favor of J. Zeevi and Sons, an Israeli partnership. Grindlays Bank issued irrevocable credit No. 110/84 for $406,846.80, payable in installments through First National City Bank (Citibank) in New York. Later, the Bank of Uganda, under the Exchange Control Act of Uganda, directed Grindlays Bank to cancel foreign exchange allocations to Israeli companies, including the letter of credit. Grindlays Bank then instructed Citibank not to honor the letter of credit. Chemical Bank, acting for Zeevi, presented drafts to Citibank, but Citibank refused payment.
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Procedural History
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J. Zeevi and Sons, Ltd., as assignee of the partnership, commenced an action in New York, attaching Grindlays Bank’s funds at Citibank. Grindlays Bank moved to dismiss for lack of jurisdiction, arguing Ugandan law should apply. The Supreme Court denied the motion, and the Appellate Division affirmed. Grindlays Bank appealed to the New York Court of Appeals.
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Issue(s)
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1. Whether New York courts had subject matter jurisdiction over the dispute, considering the defendant was a foreign bank and the plaintiff was a foreign entity.
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2. Whether Ugandan law, specifically its exchange control regulations, should govern the enforceability of the letter of credit.
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3. Whether the act of state doctrine precluded New York courts from questioning the actions of the Ugandan government.
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4. Whether the Bretton Woods Agreement rendered the letter of credit unenforceable due to Ugandan exchange control regulations.
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Holding
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1. Yes, because the cause of action arose in New York when Grindlays Bank repudiated the letter of credit, which was to be honored in New York.
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2. No, because New York law applied since New York had the greatest interest in the litigation as a major financial center where the letter of credit was to be reimbursed.
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3. No, because the act of state doctrine was inapplicable since the debt was not located in Uganda, as Uganda lacked the power to enforce or collect it in New York.
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4. No, because the letter of credit was not an exchange contract within the scope of the Bretton Woods Agreement.
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Court’s Reasoning
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The court reasoned that New York had subject matter jurisdiction under Section 200-b(2)(c) of the Banking Law and Section 1314(b) of the Business Corporation Law because the cause of action arose in New York. The repudiation of the irrevocable letter of credit occurred when Grindlays Bank instructed Citibank in New York not to honor it. The court emphasized New York’s significant interest in maintaining its status as a financial center and ensuring the justified expectations of parties involved in international transactions within the state. The court quoted Intercontinental Planning v. Daystrom, Inc., stating that the law of the jurisdiction having the greatest interest in the litigation should be applied. The court noted the letter of credit business is customarily handled by certain New York banks whose facilities are particularly adaptable to this field of operation. The court also cited Gonzalez v. Industrial Bank, stating