128 A.D.3d 36
N.Y. App. Div.2015Background
- Signature Bank issued an irrevocable transferable standby letter of credit (SLC) for Arkin Kaplan to secure Ladenburg Thalmann (beneficiary) for unpaid rent; the SLC was amended six times.
- The SLC required presentation of "the original of this standby letter of credit, and all amendments, if any, and the operative notice."
- Ladenburg sought a drawdown after Arkin Kaplan defaulted but could not locate originals of amendments 2 and 3; it presented originals of the SLC and amendments 1, 4, 5, 6, and later received true copies of amendments 2 and 3 from the bank's counsel.
- Signature dishonored the initial demand, citing failure to present originals of amendments 2 and 3; the court allowed Ladenburg to cure by presenting a true copy of amendment 2 with an affidavit.
- The bank again dishonored a subsequent drawdown; Supreme Court held Ladenburg substantially complied and granted summary judgment for plaintiff.
- On appeal, the First Department affirmed, holding strict compliance applied but a true copy of amendment 2 (provided by the bank and not disputed) satisfied strict compliance as the variance was inconsequential and could not mislead the bank.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether originals of all amendments were required to trigger payment under the SLC | A true copy of amendment 2 (with affidavit) is sufficient; plaintiff substantially complied and any defect was inconsequential | The SLC required originals; strict compliance mandated dishonor because originals of amendments 2 and 3 were not presented | Strict compliance governs, but a true copy of amendment 2 (prepared by bank and undisputed) satisfied strict compliance because it could not mislead the bank |
| Whether the bank could insist on strict compliance despite an application provision allowing acceptance of "substantial" compliance | Plaintiff relied on application language authorizing acceptance of substantial compliance to relax strictness | Bank argued application explicitly reserved its discretion to require strict compliance | Court read the provision to permit the bank to demand strict compliance; bank's insistence on strict standard was proper, but harmless here because the copy was nonmisleading |
| Whether the missing original amendment was material given later amendments extended the expiration date beyond amendment 2 | Plaintiff: amendment 2 merely extended expiration and was superseded; its absence was immaterial | Bank: failure to present originals is a facial noncompliance justifying dishonor | Court: amendment 2 was superseded and the copy could not mislead; absence of original was inconsequential under strict compliance |
| Whether ambiguity in the SLC's language about which documents must be originals should be construed against the issuer | Plaintiff: comma placement creates ambiguity so instruction should be construed against bank | Bank: plain requirement for originals covers amendments too | Court noted some textual ambiguity and confirmed that ambiguities are resolved against issuing banks; this supported finding no material variance |
Key Cases Cited
- United Commodities-Greece v. Fidelity Intl. Bank, 64 N.Y.2d 449 (N.Y. 1985) (articulates strict compliance rule for letters of credit)
- BasicNet S.P.A. v. CFP Servs., Ltd., AD3d (1st Dep't 2015) (strict compliance permits nonmeaningful discrepancies that cannot mislead the bank)
- Ocean Rig ASA v. Safra Natl. Bank of N.Y., 72 F. Supp. 2d 193 (S.D.N.Y. 1999) (discusses nonmeaningful discrepancies under strict compliance)
- E & H Partners v. Broadway Nat. Bank, 39 F. Supp. 2d 275 (S.D.N.Y. 1998) (strict compliance rationale: protect issuer from assessing commercial impact of document discrepancies)
- Bank of Cochin Ltd. v. Manufacturers Hanover Trust Co., 612 F. Supp. 1533 (S.D.N.Y. 1985) (failure to provide an additional set of identical documents held nonmisleading and allowable)
- Hellenic Republic v. Standard Chartered Bank, 219 A.D.2d 498 (1st Dep't 1995) (discrepancies in letterhead/name can be material because they may mislead the bank)
- Tosco Corp. v. Federal Deposit Ins. Corp., 723 F.2d 1242 (6th Cir. 1983) (minor clerical variations do not defeat strict compliance)
- Beyene v. Irving Trust Co., 596 F. Supp. 438 (S.D.N.Y. 1984) (misspelled names can be material discrepancies)