## Facts

- Hamilton Industries International, Inc. submitted a bid for a Saudi subcontract and was required to provide a bid guarantee for the benefit of Saudi Medcenter, Ltd. (SMC).
- American National Bank (ANB) issued a $290,700 standby letter of credit naming Banque Paribas’s Bahrain branch as the bank to be paid upon demand.
- The standby letter of credit required ANB to pay Paribas upon Paribas’s demand accompanied by Paribas’s signed statement certifying it had been called upon to make payment under its guaranty in favor of SMC.
- Paribas issued a separate guaranty to SMC (modeled on a form supplied by ANB) that expired February 28, 1983, and stated it was governed by Saudi law; ANB’s letter of credit expired March 15, 1983.
- SMC communicated a demand for payment to Paribas shortly before the guaranty’s expiration; Paribas treated the communications as a call on the guaranty.
- After the guaranty’s stated expiration, SMC sent a written demand referencing the guaranty’s correct number and date; Paribas paid SMC.
- Paribas sought reimbursement from ANB under the standby letter of credit; ANB refused, asserting Paribas had not strictly complied with the letter of credit’s conditions.
- In federal district court proceedings over entitlement to the funds, the court granted summary judgment against Paribas, reasoning that defects in SMC’s demand under the guaranty defeated Paribas’s right to reimbursement; Paribas appealed.

## Issues

1. Whether ANB could refuse to honor the standby letter of credit based on alleged defects in SMC’s demand on Paribas or Paribas’s payment under the separate guaranty.
2. Whether “strict compliance” permitted treating the guaranty’s terms (including expiration and any demand formalities) as conditions of payment under ANB’s letter of credit.
3. Whether Paribas satisfied the letter of credit’s documentary requirements by presenting the signed certification specified in the credit.

## Decision

- The Seventh Circuit reversed the summary judgment against Paribas and remanded.
- The court held ANB was required to honor the standby letter of credit because Paribas presented the documents the credit required, including Paribas’s signed statement certifying it had been called upon to pay under its guaranty.
- The court rejected the view that ANB could withhold payment by litigating whether SMC’s demand complied with the guaranty’s terms or whether Paribas should have paid after the guaranty’s expiration.

## Legal Principles

- A letter of credit is independent from the underlying contracts it supports; the issuer’s obligation is determined by the credit’s terms and the presented documents, not by disputes over the underlying transaction (absent recognized exceptions such as fraud).
- “Strict compliance” applies to the documents required by the letter of credit, not to performance under, or enforceability of, a separate underlying guaranty.
- An issuer may not treat terms of an underlying guaranty as incorporated conditions of the letter of credit unless the credit expressly makes them conditions of honor.

## Conclusion

The court enforced the independence of the standby letter of credit by requiring the issuer to pay when the beneficiary bank presented the conforming certification demanded by the credit, leaving disputes about the validity or timing of the underlying guaranty demand outside the issuer’s payment decision.


Banque Paribas v. Hamilton Indus. Int'l, Inc., 767 F.2d 380 (7th Cir. 1985)