Sztejn v. J. Henry Schroder Banking Corp.
Supreme Court of New York
31 N.Y.S.2d 631 (1941)
Sztejn and Schwarz (plaintiff and defendant) contracted to buy goods from Transea Traders, Ltd. (defendant) in India, financed through an irrevocable letter of credit issued by J. Henry Schroder Banking Corporation (defendant) that would pay upon shipment and presentation of an invoice and bill of lading; Transea shipped cases that in fact contained worthless rubbish rather than the contracted goods, then obtained an invoice and bill of lading anyway and drew a draft under the letter of credit through Chartered Bank of India, Australia and China (defendant), which presented the draft and documents to Schroder for payment. Sztejn sued to void the letter of credit and draft and enjoin payment, alleging Transea's fraudulent scheme and that Chartered Bank was not an innocent holder for value but was instead acting on Transea's behalf to procure payment; Chartered Bank moved to dismiss the complaint for failure to state a cause of action.
Whether the issuer of a letter of credit is required to pay on the letter if the seller's intentional fraud has been brought to the bank's notice before the drafts and documents have been presented for payment.