## Facts

- A developer, Woodmoor Corporation, sought approval for several subdivisions in Routt County, Colorado, as part of the “Stagecoach” project.
- As a condition of plat approval under state law and county subdivision regulations, Woodmoor agreed to provide financial security for construction of internal subdivision roads and related improvements.
- Woodmoor entered subdivision improvements agreements with the County requiring road construction and, at Woodmoor’s request, Colorado National Bank of Denver issued three irrevocable standby letters of credit naming the County as beneficiary:
  - No. 1156 ($158,773), expiring December 31, 1975.
  - No. 1157 ($77,330), expiring December 31, 1975.
  - No. 1168 ($113,732), expiring December 31, 1976.
- Each letter required a draw by a “fifteen-day sight draft” plus a signed statement by the County certifying the improvements were not made in compliance with the relevant improvements agreement and demanding payment.
- Woodmoor entered bankruptcy in 1974, and the road construction was never begun.
- On December 31, 1975, the County made demands on Nos. 1156 and 1157 without including sight drafts; the Bank dishonored.
- On December 22, 1976, the County demanded payment on No. 1168 without a sight draft; the Bank dishonored.
- On December 29, 1976 (before expiration), the County presented a fifteen-day sight draft and the required certification for No. 1168; the Bank again dishonored.
- The County sued for the full face amounts of all three letters plus interest; the trial court excluded the Bank’s proposed evidence concerning the underlying transaction (including the argument that payment would be a “windfall”) and entered judgment for the County on all three credits.
- The court of appeals affirmed; the Colorado Supreme Court granted certiorari.

## Issues

1. Whether demands on Letters of Credit Nos. 1156 and 1157 that omitted the required fifteen-day sight drafts strictly complied with the credits, obligating the Bank to honor them.
2. Whether the County’s December 29, 1976 presentment on Letter of Credit No. 1168 (including a sight draft and certification) strictly complied and was timely.
3. Whether the issuer could avoid or limit payment by introducing extrinsic evidence and equitable defenses based on the underlying development agreements and alleged absence of County expenditures.

## Decision

- The Supreme Court reversed as to Letters of Credit Nos. 1156 and 1157 because the County failed to present the required sight drafts; the Bank properly dishonored.
- The Court affirmed as to Letter of Credit No. 1168 because the County’s December 29 presentment included the required sight draft and certification and was made before the expiration date; the Bank wrongfully dishonored and was liable for the face amount (with appropriate interest).
- The Court rejected the Bank’s attempt to litigate underlying equities (including “windfall” arguments) to defeat an otherwise conforming demand, and treated the dispute as governed by the credits’ documentary conditions.

## Legal Principles

- A letter of credit is independent of the underlying contract between the applicant and beneficiary; the issuer’s obligation is defined by the credit’s terms and the documents presented.
- The beneficiary must strictly comply with documentary conditions stated in the letter of credit; omission of a required document (such as a sight draft) justifies dishonor.
- When a beneficiary makes a timely presentment that strictly conforms to the credit, the issuer must honor; defenses based on underlying performance, loss, or fairness generally do not defeat the issuer’s documentary obligation.
- Courts may exclude extrinsic evidence directed to underlying-transaction disputes when the dispositive question is documentary compliance with the credit.

## Conclusion

The court held the Bank was not liable on two letters where the County failed to include required sight drafts, but was liable on the third letter because the County timely presented the exact documents the credit required; issuer liability turned on strict documentary compliance, not underlying equities.


Colorado Nat'l Bank of Denver v. Bd. of Cnty. Comm'rs, 634 P.2d 32 (Colo. 1981)