Factual Summary:

To assure payment of a portion of the cost of building a solid waste recovery facility, beneficiary, a local governmental unit, required the partnership that had agreed to operate the facility to post a standby letter of credit. The terms of the standby required presentation of a drawing certificate that was annexed to the standby.1 The certificate contained four numbered paragraphs, "each of which the [beneficiary] apparently had to 'certify' had been satisfied. Three of these four paragraphs are stated in the alternative, with square brackets enclosing each alternative and group of alternatives."

While two of the paragraphs of the Annex were separated by "or" to signify alternatives, and some were surrounded by brackets, there was no indication of how the various alternatives were to be read.

The first numbered paragraph of the Annex contained alternative paragraphs (1). The Opinion set out two of the paragraphs that the appellate court deemed relevant:

[(3) You are directed to make immediate payment of the requested drawing to the Beneficiary's account no. ____ at [insert bank name and address]. [Include when this certificate is signed by both the Beneficiary and the Partnership]

(4) ...]


[(3) You are directed to make immediate payment of the requested drawing to the Beneficiary's account no. ____ at [insert bank name and address]. The date of the requested drawing is at least 30 days after the decision of the arbitrator ... was delivered to the Bank. [Include when this certificate is only signed by a Beneficiary and after a written finding of an arbitrator has been delivered to the Bank]

(4) ...]

When the partnership became insolvent and defaulted on its obligations to pay, the governmental unit/beneficiary made two attempts to draw, submitting a certificate signed by an authorized official of the governmental unit. The issuer dishonored on the ground that the LC required presentation of a certificate with the applicant's cosignature or a written arbitration award. When the beneficiary brought this action for wrongful dishonor, the trial court granted the issuer's motion for summary judgment. On appeal, reversed and remanded.

Legal Analysis:

1. Strict Compliance: The court stated its interpretation of New York's "strict compliance rule", namely that the beneficiary must prove its strict compliance with the terms of the LC but that the LC must contain "explicit" requirements and that ambiguities are to be construed against the issuer.

The trial court had concluded "with little explanation" that the drawing was conditioned on production of either a co-signature or an arbitration award.

2. Interpretation: The issuer insisted that the alternative reading between the two paragraphs (3) and (4) required that there be presented either a co-signature of the applicant or an arbitration award. The court indicated that several readings of the text were possible. Noting that the interpretation of the terms was not possible as a matter of law, the court held that summary judgment was inappropriate for the issuer or the applicant, and remanded for trial.


1. It goes without saying that the Annex was poorly drawn and confusing. The opinion does raise the question as to whether a required annex can itself impose other documentary or substantive requirements. It is clear that an Annex can require certification or statement of facts. It is much less clear that such a document can impose documentary requirements not present in the LC. As a matter of form, it is preferable to include such requirements in the text of the credit.

2. Interestingly, the court did not suggest that the credit might be read with an alternative between paragraph (1) in the first instance standing alone and alternative paragraph (1) together with the other paragraphs 2 - 4 (and their various alternatives) on the other hand.

1. The document labelled "Irrevocable Letter of Credit", Annex I, and Annex II are all reprinted in the Full Text section.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.