## Facts

- Fiduciaries of union employee benefit funds required participating employers to secure benefit contributions with a surety bond.
- An employer group (Elemco) entered Chapter 11 bankruptcy owing substantial unpaid benefit contributions, including withheld but unremitted 401(k) amounts.
- The bankruptcy court authorized Elemco to obtain a $50,000 standby letter of credit from Suffolk County National Bank to substitute for the required bond.
- The bank issued an irrevocable standby letter of credit naming the fund fiduciaries as beneficiaries and stating it would be honored upon presentment of (1) the original letter, (2) a sight draft, and (3) a final bankruptcy court order certifying Elemco’s failure to remit funds due; the letter stated an expiration date of September 4, 2010.
- Before the stated expiration, the beneficiaries presented the original letter, a signed sight draft, and a bankruptcy court order finding non-remittance.
- The bank refused payment, asserting the letter had terminated earlier under language in the bankruptcy court’s financing order that purportedly ended the letter upon a court-authorized asset sale.

## Issues

1. Whether the beneficiaries strictly complied with the documentary conditions stated in the standby letter of credit.
2. Whether the issuer could treat the standby letter as terminated based on a separate bankruptcy court order not incorporated into the letter, despite the letter’s stated expiration date.
3. Whether the independence principle bars dishonor based on extrinsic limitations arising from the underlying bankruptcy proceeding.

## Decision

- The Appellate Division, Second Department reversed the order denying summary judgment.
- The court granted the beneficiaries summary judgment on the complaint for $50,000, with costs.
- The court held the issuer was obligated to honor the draw because the presented documents conformed to the letter’s express requirements and the draw was made before the stated expiration date.

## Legal Principles

- A letter of credit is independent from the underlying transaction; the issuer must honor a compliant presentation without regard to disputes or arrangements external to the letter.
- Under strict compliance, an issuer may dishonor only for discrepancies apparent on the face of the required documents.
- Conditions or limitations contained in separate agreements or orders do not affect the issuer’s obligation unless clearly and explicitly incorporated into the letter of credit.
- The expiration date stated in the letter of credit controls absent an express modification within the letter itself.

## Conclusion

Because the beneficiaries timely presented the documents required by the standby letter of credit and the bank’s termination defense relied on an external bankruptcy order not incorporated into the letter, the issuer’s dishonor was wrongful and summary judgment for payment was required.


Gilday v. Suffolk Cnty. Nat’l Bank, 954 N.Y.S.2d 109 (App. Div. 2d Dep’t 2012)