## Facts

- State Street Bank issued two irrevocable commercial letters of credit at the request of its customer, Robert Lawrence, Inc., to finance garment purchases from two Spanish manufacturers (Alcides and Longuer).
- Banco Espanol de Credito was designated as the advising/correspondent bank; the Spanish manufacturers were the beneficiaries.
- The credits required specified shipping documents, including full sets of clean on-board ocean bills of lading dated no later than March 31, 1963.
- The credits also required an inspection certificate; at issuance, no inspector was named, and State Street warned Lawrence that this created a documentary gap.
- The credits were later amended to require an inspection certificate from a named inspection firm stating that the goods “are in conformity with the order.”
- Banco Espanol presented drafts and supporting documents to State Street, including inspection certificates it contended satisfied the amended terms.
- State Street refused to accept and pay the drafts, asserting that the inspection certificates did not conform to the letters of credit as amended.

## Issues

1. Whether State Street was justified in dishonoring the drafts because the presented inspection certificates did not strictly comply with the amended requirement for a certificate by the named firm stating that the goods “are in conformity with the order.”
2. Whether letter-of-credit law permits (or requires) an issuing bank to insist on strict documentary compliance, evaluated from the face of the documents, without regard to underlying commercial understandings.

## Decision

- The First Circuit affirmed the district court’s judgment for State Street after a consolidated bench trial.
- The court held that State Street properly dishonored because the inspection certificate did not meet the amended terms of the letters of credit.
- The court accepted the district court’s determination that the discrepancy was material under letter-of-credit rules and did not warrant compelling payment.

## Legal Principles

- An issuing bank’s obligation under a letter of credit is independent of the underlying sales contract; the bank deals in documents, not goods.
- The issuer may honor drafts only upon presentation of documents that strictly conform to the letter of credit’s stated conditions.
- Compliance is assessed on the face of the documents against the credit’s terms as written and amended, rather than by reference to side communications or commercial context.
- If a credit requires a certificate from a named inspection firm with specific attestations, a certificate that fails to provide the required certification in the required form (or capacity) constitutes a discrepancy justifying dishonor.

## Conclusion

The court upheld dishonor because the inspection certificate failed strict compliance with the amended documentary condition, reaffirming that an issuer’s duty to pay is triggered only by conforming documents evaluated by the letter of credit’s precise terms.


Banco Espanol de Credito v. State Street Bank & Tr. Co., 385 F.2d 230 (1st Cir. 1967)