demand letters had only warned of acceleration, but Stathis's affidavits recounted that the promissors had ignored these warnings. The court determined that Stathis's documents presented an "effective notice" of acceleration, and thereby met the terms of the credit. Id. at 815-16.
Stathis's standard of reasonable compliance in presentation of draft documents found favor with some courts in this district in the years following its publication. See, for example, Crocker Commercial Services v. Countryside Bank, 538 F. Supp. 1360, 1362 (N.D. Ill. 1981) (noting Stathis's shift from traditional compliance rule to reasonable compliance standard). Reports of the demise of the strict compliance rule were exaggerated, however. A different division of the same Illinois Appellate Court noted in Mt. Prospect St. Bk. v. Marine Midland Bk., 121 Ill. App. 3d 295, 300-02, 459 N.E.2d 979, 983-84, 76 Ill. Dec. 844 (1983), that strict compliance was still the majority rule, and suggested that it was particularly appropriate in cases under the UCP. The court in Auto-Owners Ins. v. So. Side Tr. & S. Bk., 176 Ill. App. 3d 303, 310, 531 N.E.2d 146, 151, 126 Ill. Dec. 13 (1988), further read Mt. Prospect to be reasserting the primacy of the strict compliance rule, and expressly rejected a suggestion that it adopt a lesser exacting standard. The amended comments to § 5-114 note that "Mount Prospect strongly suggests that the strict compliance standard has been and is the rule in Illinois and that Stathis as a precedent may be a narrowly confined one." Ill.Ann.Stat. ch. 26, para. 5-114 general comment (Smith-Hurd. 1988 supp.).
The court in Mt. Prospect approvingly quoted the summary of the strict compliance rule presented in Courtaulds North America, Inc. v. N.C. Nat. Bank, 528 F.2d 802, 805-06 (4th Cir. 1975): "The beneficiary must meet the terms of the credit -- and precisely -- if it is to exact performance of the issuer. Failing such compliance there can be no recovery from the drawee." A more hoary statement of the rule appears in Equitable Trust Co. of N.Y. v. Dawson Partners, Ltd., 27 Lloyd's Rep. 49, 52 (House of Lords 1926): "It is both common ground and common sense that in such a transaction the accepting bank can only claim indemnity if the conditions on which it is authorized to accept are in the matter of the accompanying documents strictly observed. There is no room for documents which are almost the same, or which do just as well."
The differences between the March 25 certificates and the requirements of the letters of credit are substantial. It is not clear from the face of the March 25 certificates that "any bond(s) or undertaking(s)" means "bond(s) or undertaking(s) at the request of Bill's Coal Company." For all that Continental Illinois knew, Occidental Fire and the Liquidator could have intended to apply the proceeds of the letters of credit to liabilities on other bonds besides those issued on behalf of Bill's Coal. Had this happened, and had Occidental Fire and/or the Liquidator refused to remit sums not needed to satisfy their Bill's Coal liabilities, Continental Illinois could have found itself facing suit from Bill's Coal for breach of duty. See Ill.Rev.Stat. ch. 26, para. 5-109(1)-(2) (issuer owes duty of good faith towards customer; suggests duty includes careful examination of documents to insure compliance). Adherence to the strict compliance rule allowed Continental Illinois to escape this problem, and placed the onus upon the beneficiaries to present conforming documents.
Occidental Fire's authorities do not indicate to the contrary of this court's view that the March 25 certificates did not strictly conform with the terms of the letters of credit. In American Airlines, Inc. v. Federal Deposit Ins., 610 F. Supp. 199 (D. Kan. 1985), the court noted that under Kansas's view of the strict compliance standard, "'a variance between documents specified and documents submitted is not fatal if there is no possibility that the documents could mislead the paying bank to its detriment '". Id. at 202, quoting Flagship Cruises, Ltd. v. New England Merchants, 569 F.2d 699, 705 (1st Cir. 1978) (emphasis in Flagship Cruises). The American Airlines court concluded that there was no possibility that the Federal Deposit Insurance Corporation ("FDIC") could have mistaken American Airlines's documents as to the letter of credit reference number and the proper drawee bank -- the only two variances in the drafts presented to the FDIC. American Airlines, 610 F. Supp. at 202. By contrast, the variances in the March 25 certificates raised a possibility that Continental Illinois would have been mistaken had it paid out on them. As for Crist v. J. Henry Schroder Bank & Trust Co., 693 F. Supp. 1429 (S.D.N.Y. 1988), the question there was whether a receiver -- much like the Liquidator in this case -- could succeed to the interests of a beneficiary under a letter of credit. Again the court determined from the documents presented that there was no possibility that the bank could have feared being mistaken in honoring the draft. Unlike in Crist, uncertainty abounds within the March 25 documents, and Continental Illinois had good grounds for dishonoring the accompanying drafts.
Occidental Fire contends that even if Continental Illinois had grounds for dishonoring the March 25 draw, it did so in an untimely fashion, and in a manner that particularly prejudiced Occidental Fire. The parties agree that Continental Illinois was obligated to give Occidental Fire and the Liquidator notice of dishonor within three business days of Continental Illinois' receipt of the draw. This means that Continental Illinois had to give notice to the parties no later than March 30, 1987 of its decision on the March 25 drafts, as a Saturday and a Sunday intervened. Notice under the UCP includes "stating the reasons therefor," and "must, without delay, be given by cable or other expeditious means. . . ." UCP, art. 8(e). Under Illinois law, the failure to state a reason for dishonor can work to estop a bank from later claiming that reason as a justification for dishonor. See Stathis, 90 Ill.App.3d at 812; American Employers Ins. v. Pioneer Bank & Trust, 538 F. Supp. 1354, 1357 (N.D. Ill. 1981) (construing Illinois law); American Nat. Bank & Trust v. Hamilton Industries, 583 F. Supp. 164, 172 (N.D. Ill. 1984) (same).
The parties agree that Continental Illinois informed Occidental Fire and the Liquidator that it would dishonor the drafts on March 30, through both Perez's and Shannon's calls. The parties disagree as to whether those communications constituted proper notice under the UCP, or were made in such a way as to allow Continental Illinois to assert before this court the discrepancy in the "aforementioned bond(s) and undertaking(s)" as a reason for dishonor. Occidental Fire claims that Perez never mentioned the discrepancy; as for Shannon's call, Occidental Fire asserts that Shannon told Foley that his call was not a formal notice of dishonor.
The trier of fact will have to determine if Occidental Fire's factual assertions are true.
Another issue for the trier of fact will be whether Occidental Fire assented to the amendment of letter of credit No. 6328290. Of course, if Continental Illinois timely dishonored the March 25 drafts, then this issue is moot, as Occidental Fire presented no other valid draft under letter of credit No. 6328290, amended or otherwise. Continental Illinois' employees cannot recall whether Occidental actually approved the amendment, although there is evidence that Occidental had appointed someone, to act as its agent in this regard. Occidental Fire's Executive Vice President, James O. Eason, Jr., has not stated that Occidental Fire did not approve the amendment; all he says is that he cannot find a record indicating assent. The trier of fact will have to sort this problem out.
For the reasons stated in this opinion, this court grants Continental Illinois summary judgment on Count 2 of Occidental Fire's complaint, and decides that Continental Illinois had proper grounds for its dishonors of February 6 and March 25, 1987. All other motions are denied.
DATE: June 23, 1989