Legal Bulletins
Exhibits to a Letter of Credit May Not Be Good Enough
Brunswick County v. The Bank of Tokyo-Mitsubishi, Limited, in the United States Court of Appeals for the Fourth Circuit, No. 99-2380, June 7, 2000.
Holding:
A Bank is not entitled to summary judgment on a letter of credit requiring co-signatures of the Bank's customer and the beneficiary when that requirement is not contained in the letter of credit but in an Annex to it and where the requirement is not absolutely clear.
Background:
Brunswick County was the beneficiary of a letter of credit issued by The Bank of Tokyo-Mitsubishi on behalf of its client, BCH Energy, Limited Partnership securing certain obligations owed by BCH to the County. BCH de- faulted on its obligations, and the County attempted to draw down on the letter of credit.
The Bank declined to honor the County's claims and asserted that under the terms of the letter of credit, it was required to honor a draw request only if it was co-signed by its customer or if the beneficiary presented the Bank with an arbitration award.
The problem with the Bank's analysis was that this requirement was not expressed in the letter of credit itself, but in "Annex I," a model drawing certificate attached to the letter.
Law:
Applying New York law which is not unlike Maryland law on this point, the Fourth Circuit Court of Appeals reversed summary judgment in favor of the Bank, holding that the letter of credit was ambiguous despite the language contained in "Annex I."
Recommendations:
If there are conditions to drawing down a letter of credit, make sure those conditions are clearly expressed in the letter itself. If additional exhibits are to be annexed, be sure they are specifically incorporated as conditions of the letter of credit. It may not suffice, at least for purposes of obtaining summary judgment and avoiding an expensive trial, simply to append such terms to the letter of credit in the form of annexes or exhibits.