Opinion ID: 1359301
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Heading: The Oklahoma Version of the Uniform Commercial Code Requires Strict Compliance With A Letter of Credit When Demand Is Made Thereon

Text: Diamond Plastics asserts the draft it sent to Bank complied with the terms of the letter of credit. Bank counters that Diamond Plastics did not strictly comply with the letter's terms as required by law. The Bank points to LeaseAmerica Corp. v. Norwest Bank Duluth, N.A., 940 F.2d 345 (8th Cir.1991), in support of its argument. Therein, the Eighth Circuit Court of Appeals found that the majority of jurisdictions have adopted a rule requiring strict compliance with the terms of a letter of credit when presenting it for payment. The beneficiary in LeaseAmerica brought an action against the issuing bank for wrongful dishonor when the bank refused to honor the letter of credit where the beneficiary failed to include certain documents with its draft. The appellate court affirmed the trial court's summary judgment for the bank and rejected a standard of substantial compliance urged by the beneficiary. The court stated: Adoption of a substantial compliance standard would place issuing banks in uncertain positions with respect to their obligations... . [I]f this court were to adopt this standard, the issuing bank would be required to apply a legal or commercial analysis, often without benefit of professional advice, in every situation in which compliance was colorably `substantial.' We believe that this would burden an issuing bank unduly and would fetter the commercial purposes of the letter of credit. Adoption of a substantial compliance standard on grounds that the result will more likely meet the parties' expectations might also erode the principle that a letter of credit is independent of contracts between the bank's customer and the beneficiary. 940 F.2d at 348-49 (Citations omitted). Accord Voest-Alpine Int'l Corp. v. Chase Manhattan Bank, N.A., 707 F.2d 680, 682-83 (2d Cir.1983) (Adherence to this rule [of strict compliance] ensures that banks, dealing only in documents, will be able to act quickly, enhancing the letter of credit's fluidity.); Philadelphia Gear Corp. v. Central Bank, 717 F.2d 230, 236 (5th Cir.1983) (This doctrine of strict compliance is firmly grounded in commercial reality. In the event payment is made upon presentations that do not conform to the credit, the issuer loses its right to reimbursement from its customer.); Siderius v. Wallace Co., 583 S.W.2d 852, 859 (Tex.Civ.App. 1979) (The rule of strict conformity is necessary because the issuer, dealing solely in documents, should not be required to examine the performance of the underlying transaction to determine if the terms of the letter of credit have been fulfilled.). See generally Dolan J., Strict Compliance with Letters of Credit: Striking a Fair Balance, 102 Banking L.J. 18 (1985). The overwhelming majority of courts considering the issue of compliance with the terms of letters of credit have adopted the strict compliance standard. See Seattle-First Nat'l Bank v. Fed. Deposit Ins. Corp., 619 F. Supp. 1351, 1362 (W.D.Okla. 1985) (Most (though not all) of the circuit courts ... have held that an issuing and a confirming bank are entitled to demand a beneficiary's `strict compliance' with the terms of presentment specified in a letter of credit.) and cases cited therein. Furthermore, one Federal District Court in Oklahoma adopted the strict compliance rule stating where specific documents are called for in a letter of credit, nothing short of the production of these documents will make the issuer of the credit responsible. Bank of Am. Nat'l Trust & Sav. Ass'n v. Liberty Nat'l Bank & Trust Co., 116 F. Supp. 233, 236, n. 11 (W.D.Okla. 1953), aff'd, 218 F.2d 831 (10th Cir.1955). The opinion continued by quoting with approval from a Massachusetts Supreme Court case, Moss v. Old Colony Trust Co., 246 Mass. 139, 140 N.E. 803, 808 (1923), as follows: There is no promise to pay unless drafts are in strict conformity to the authority conferred ... . The bank as the writer of the letter of credit will not be bound to accept and pay bills or drafts drawn against it unless the holder of the letter pursues and conforms in every particular to the authority conferred therein.  116 F. Supp. at 237, n. 11 (Emphasis in original). We agree that adoption of a standard any less than strict compliance would defeat the purpose and intended operation of a letter of credit. We, therefore, join the majority of jurisdictions which hold strict compliance with the terms of the letter of credit as the standard to be used by issuers in determining whether to honor a draft on a letter of credit. We also note, however, that even if we were to adopt a substantial compliance rule for cases such as this, Diamond Plastics' presentment in the case at bar would likely fail the substantial compliance standard as the required documentation was wholly absent in the presentment. We are not here dealing with a minor discrepancy or a typographical error. Having concluded that strict compliance with the terms of the letter of credit is required, we now look to the draft sent by Diamond Plastics to determine whether it strictly complied with the terms of the letter of credit. B.