## Facts

- Southern International Insurance Company, Ltd. (Southern) sought to satisfy a Cayman Islands insurance regulatory requirement by providing financial security for policyholders.
- At Southern’s request, New Braunfels National Bank (the Bank) issued an irrevocable $250,000 letter of credit, No. 86-122-S, naming P.W. Bates (Cayman Islands Superintendent of Insurance) as beneficiary.
- The letter of credit required that any draw be marked: “Drawn under New Braunfels National Bank Irrevocable Letter of Credit Number 86-122-S.”
- On the credit’s expiration date, Bates presented a drawing letter and also tendered the original letter of credit to the Bank.
- The drawing letter’s legend referenced “Irrevocable Letter of Credit No. 86-122-5,” substituting the numeral “5” for the letter “S.”
- The Bank treated the mismatch in the identifying legend as a discrepancy and dishonored the demand.
- The Bank filed suit seeking declaratory relief that its dishonor was proper and also sought relief aimed at preventing withdrawal of a $250,000 certificate of deposit (CD) that Southern had purchased from the Bank in connection with reimbursement arrangements for the credit.
- Bates counterclaimed for payment under the letter of credit. Southern (later replaced by its receiver) counterclaimed for recovery of the CD.
- Southern entered receivership, and James T. Odiorne was substituted as receiver for Southern.
- On cross-motions for summary judgment, the trial court ruled for the Bank on the letter-of-credit dishonor and ruled in part for the receiver by declaring the Bank had no security interest in the CD and that a related promissory note held by the Bank was null and void.
- Bates appealed the dishonor ruling, and the Bank appealed the adverse rulings regarding the CD and promissory note.

## Issues

1. Whether the beneficiary’s presentation on the expiration date sufficiently complied with the letter of credit when the draw legend contained a minor typographical variation in the credit number (“S” vs. “5”) but the original letter of credit was presented and the demand otherwise identified the credit.
2. Whether summary judgment properly declared that the Bank had no security interest in Southern’s $250,000 certificate of deposit and that the related promissory note was null and void.

## Decision

- The court reversed the trial court’s declaration that the Bank properly dishonored the draw and held that the “S/5” discrepancy did not justify dishonor under these circumstances.
- The court reversed the portion of the judgment declaring the Bank had no security interest in the CD and that the promissory note was null and void.
- The court reversed and rendered in part and reversed and remanded in part for further proceedings consistent with its rulings.

## Legal Principles

- A letter of credit is a documentary undertaking; the issuer’s duty to honor turns on the documents presented, not the underlying business or regulatory purpose for the credit.
- Although letter-of-credit practice applies a strict-compliance standard, the issuer may not refuse honor for a minor, nonmisleading variance in required identifying language when the presentation, read as a whole (including tender of the original credit), clearly calls for payment under the correct credit.
- In reviewing summary judgment, the appellate court applies established standards requiring that evidence and reasonable inferences be taken in favor of the nonmovant; issues not conclusively resolved as a matter of law cannot be disposed of by declaration on summary judgment.
- Declarations negating an issuer’s claimed security interest in collateral supporting reimbursement obligations, or declaring a related note void, require a record that conclusively supports that result; absent conclusive proof, reversal and further proceedings are required.

## Conclusion

New Braunfels National Bank v. Odiorne holds that a bank may not dishonor a letter-of-credit draw based solely on an immaterial, nonmisleading typographical error in the draw’s identifying legend when the presentation otherwise plainly points to the correct credit, and it further holds that summary declarations eliminating the bank’s claimed security interest in a related CD and voiding a promissory note were improper on the record presented, requiring reversal and additional proceedings.


New Braunfels National Bank v. Odiorne, 780 S.W.2d 313 (1989)