## Facts

- Siderius, an international steel trader, agreed to sell Wallace 5,000 net tons of foreign steel pipe at about $715 per ton, conditioned on Wallace obtaining a letter of credit in Siderius’s favor.
- Texas Commerce Bank issued an irrevocable documentary letter of credit (Aug. 1, 1974) for $3,753,750 requiring, among other documents, a full set of “on board” ocean bills of lading showing shipment by a specified date and “freight prepaid.”
- The parties extended the latest shipment date to January 15, 1975.
- Israeli-manufactured pipe shipments were timely and paid under the letter of credit.
- The Italian-manufactured pipe was not loaded on board until January 29, 1975.
- Siderius presented drafts to the Bank supported by an “on board” bill of lading dated January 15, 1975, although the vessel did not arrive at the loading port until January 24, making the stated shipment date impossible.
- After Wallace notified the Bank of suspected document fraud and refused to waive discrepancies, the Bank dishonored Siderius’s presentations.
- Wallace obtained injunctive relief preventing the Bank from honoring further draws; Siderius sued Wallace for breach of contract and the Bank for wrongful dishonor, and Wallace counterclaimed for fraud.

## Issues

1. Whether submitting an “on board” bill of lading misdated to meet the letter-of-credit shipment deadline constituted fraud sufficient to justify dishonor and injunctive relief.
2. Whether the fraud exception permits an issuing bank and applicant to resist payment notwithstanding the independence principle and facially compliant documents.
3. Whether the buyer could reject the Italian pipe for late shipment under the underlying sales contract.
4. Whether Siderius could recover from the issuing bank for wrongful dishonor or from the buyer for breach despite the fraud and late shipment findings.

## Decision

- The appellate court affirmed judgment for Wallace and the Bank.
- The evidence supported the jury finding that Siderius knowingly presented fraudulent shipping documents by backdating the bill of lading to appear timely.
- The Bank was justified in dishonoring the drafts after notice of fraud, and the permanent injunction against honoring the letter of credit was proper.
- Wallace was entitled to reject the Italian shipment as late and refuse payment.
- Siderius took nothing on its claims for breach of contract and wrongful dishonor.

## Legal Principles

- Letters of credit are generally independent of the underlying sales contract, and banks ordinarily deal in documents rather than goods.
- The independence principle is limited by a fraud exception: when required documents are forged or fraudulent, an issuing bank may dishonor and a court may enjoin payment.
- Facial documentary compliance does not require honor when the beneficiary knowingly presents false documents intended to induce payment.
- In a sale tied to a documentary credit, timely shipment terms may be treated as material; late shipment permits buyer rejection where contract and credit require shipment by a stated deadline.

## Conclusion

The court held that a beneficiary’s deliberate backdating of an “on board” bill of lading to satisfy a letter-of-credit shipment deadline constituted actionable fraud, allowing the issuing bank to dishonor and supporting injunctive relief, and it also allowed the buyer to reject the late-shipped goods and avoid liability on the underlying contract.


Siderius, Inc. v. Wallace Co., Inc., 583 S.W.2d 852 (Tex. Civ. App.—Tyler 1979)