## Facts

- Tradax Petroleum America, Inc. (Tradax) contracted to sell Coral Petroleum, Inc. (Coral) 31,000 barrels (±5%) of West Texas Intermediate crude oil for $880,400.
- The sales contract required Coral to obtain an irrevocable standby letter of credit in a form and from a bank acceptable to Tradax.
- Coral arranged for French American Banking Corporation (FABC) to issue the standby letter of credit naming Tradax as beneficiary, and Coral supplied FABC with the exact documentary conditions for a draw.
- Coral made a drafting error in one required document description: the letter of credit required a shipper’s transfer listing showing transfer of 31,000 barrels of “WTNM SO or SR,” which referred to sour oil, even though the contract called for West Texas Intermediate, a sweet crude.
- FABC forwarded the letter of credit to Tradax for review; Tradax reviewed and approved it without noticing the “WTNM SO or SR” error.
- Tradax shipped and delivered West Texas Intermediate crude oil to Coral.
- Coral filed for Chapter 11 bankruptcy and did not pay for the oil.
- Tradax attempted to draw on the letter of credit and presented documents including a shipper’s transfer listing reflecting delivery of West Texas Intermediate (sweet crude), not “WTNM SO or SR” (sour oil) as the letter of credit required.
- FABC dishonored the draw because the presented documents did not match the letter of credit’s stated requirements.
- Tradax filed an adversary complaint in the bankruptcy case seeking payment, arguing for reformation or a favorable reading of the letter of credit despite the mismatch.
- The bankruptcy court ruled for FABC; the district court affirmed; Tradax appealed to the Fifth Circuit.

## Issues

1. Whether Tradax could obtain reformation of the standby letter of credit to correct the mistaken “WTNM SO or SR” requirement so that Tradax’s presentation would qualify for payment.
2. Whether, even without reformation, the letter of credit could be construed in light of the underlying sales contract and the parties’ intent to treat Tradax’s non-matching shipper’s transfer listing as sufficient.
3. Whether FABC properly dishonored Tradax’s draw request under the letter of credit because the documents presented did not strictly match the credit’s documentary conditions.

## Decision

- The Fifth Circuit affirmed the judgment for FABC.
- The court held that Tradax was not entitled to reformation of the letter of credit as against the issuing bank based on the applicant’s drafting error and the beneficiary’s approval of the credit as written.
- The court rejected Tradax’s request to construe the letter of credit to override the clear “WTNM SO or SR” condition.
- Because Tradax’s presentation did not strictly match the letter of credit’s documentary requirements, FABC’s dishonor was proper.

## Legal Principles

- A letter of credit is independent from the underlying sales contract; the issuing bank’s duty is defined by the letter of credit’s stated terms, not the parties’ separate contract.
- The beneficiary must strictly comply with the letter of credit’s documentary conditions; even a seemingly small discrepancy can justify dishonor.
- Courts will not rewrite or “fix” clear, specific letter-of-credit conditions through interpretation when the effect would be to change the bank’s documentary undertaking.
- Reformation is an exceptional remedy and is not available to shift the consequences of an applicant’s drafting mistake onto an issuing bank that issued the credit in the precise form requested and approved by the beneficiary.
- When the applicant provides the wording and the beneficiary reviews and accepts it, the risk of a drafting error in the credit’s document requirements generally falls on those parties rather than on the issuing bank.

## Conclusion

In re Coral Petroleum, Inc. held that an issuing bank may dishonor a standby letter of credit draw when the beneficiary’s documents do not strictly match the credit’s express requirements, and the beneficiary cannot avoid that result by seeking reformation or a contract-based reading of the credit where the bank issued the credit exactly as instructed and the credit’s terms were clear.


In re Coral Petroleum, Inc., 878 F.2d 830 (1989)