Under LC Rules, What is a Complying Certification of a Court Order?

In re Spiegel,[[1]] raises interesting questions on the rule of strict construction of LC terms, how the UCP compared to ISP98 treats certifications, and how to draft reimbursement agreements to avoid or minimize claims for wrongful honor in the situation involved in Speigel – the technical requirements of a certification of a court order.

The standby letter of credit issued subject to UCP600 by Wintrust Bank in the Spiegel case was posted as supersedeas to stay execution pending appeal of a seven-figure contempt and attorneys’ fees judgment in an acrimonious dispute between a condominium unit owner (Spiegel) and the condo association.  The contentious dispute cost Spiegel a bankruptcy and his certificates of deposit (CDs) posted as collateral to Wintrust for issuance of the LC.  

Speigel attempted to avoid his losses by filing bankruptcy and blaming Wintrust for honoring the draw to pay the judgment against him.  In his bankruptcy proceedings, Speigel objected to Wintrust’s right to realize on the CDs securing reimbursement of the draw of the condo association’s attorney/beneficiary on the bank’s LC.  His ground for doing so was wrongful honor. He contended that the certification of the court order affirming judgment against Speigel was prepared by the attorney/beneficiary to effect the draw did not meet the strict compliance standard, was noncomplying, and therefore the draw should have been dishonored.  Spiegel argued that certification accompanying the order presented to the issuing bank should have been certified by a court official, not by the attorney/beneficiary.   At no time did Spiegel assert that the affirmed order was not genuine.      

Strict Construction

The affirming order of the district court did not adopt or deny the strict compliance argument advocated by Spiegel.  Instead, the court ruled that the SBLC did not expressly require the certification to be issued by a court official; thus, a plain reading of the certification requirement was met.[[2]] 

UCP Certification Requirement

The court cited UCP600 Article 14(a) to support its ruling that the notarized certification by the attorney/beneficiary was sufficient to comply with the SBLC’s term requiring a certification of the accompanying appellate court order upholding the judgment.  That provision states that the issuing bank is to determine “whether the documents appear to on their face to constitute a complying presentation.”  The court could also have cited, but did not cite, UCP600 Art. 3 which provides in pertinent part: “A requirement for a document to be legalized, visaed, certified or similar will be satisfied by any signature, mark, stamp or label on the document which appears to satisfy that requirement.”[[3]]

ISP Certification Requirement

Would or should the result be the same under ISP98? 

ISP98 Rule 4.07(d)(ii) has a rule for signatures if the ISP SBLC specifies that the signature must be made by “a named legal person or government agency.”  As the court noted, the Wintrust SBLC did not expressly require the affirming court order to be certified by a named legal person or a government agency.  ISP98 Rule 4.12(b) is to the same effect – when a formality is required of a document without specifying its form or content, “the statement complies if it indicates that it was declared, averred, warranted, attested, sworn under oath, affirmed, certified or the like”. 

However, ISP98 Rule 4.19 has more specific formality requirements if the ISP SBLC calls for presentation of a legal or judicial document such as a court order.  The court order can be a copy and “is deemed to comply if it appears to be:

i. Issued by a ...  court ...;
ii. suitably titled or named;
iii. signed;
iv. dated; and
v. originally certified or authenticated by an official of a ... court.”  (emphasis added)

The emphasized wording dovetails with an argument that Speigel made – that the order had to be certified by a court official, not by the beneficiary.

Besides the fact that the SBLC at issue was not governed by ISP98,[[4]] query whether a standard opinion of an Illinois appellate court which contains the printed names of the judges at the end of it complies.  In addition, Wintrust pointed to a link in the beneficiary’s certification to the official website of the Illinois Appellate Court where the opinion could be found.

This case illustrates the need for providing in an LC more specific details of a certification.  Otherwise, the applicant runs the risk, as Speigel did here, that any purported certification will be sufficient and the issuer runs the risk that only a technically compliant certification should be honored.

Reimbursement Agreement – Dual Standard Term

Most sophisticated LC issuing banks have a provision in their LC application and reimbursement agreement that allows the issuing bank to honor if the LC draw documents “substantially” comply with the requirements of the LC rather than strictly comply, but still allows the issuing bank to dishonor if the draw documents do not strictly comply with the terms of the LC. That kind of “dual standard” provision, if present, can provide a shield for issuing banks where, as here, technical arguments are made about what constitutes a sufficient certification of a court order.

[[1]]: 638 B.R. 606 (Bankr. N.D. Ill. Mar. 11, 2022) [USA], aff’d No. 22-C-1559, slip op. (N.D. Ill. Jan 30, 2025) [USA]

[[2]]: Without espousing the rule, the court in effect used the reasoning adopted by a number of SBLC cases – where a term in an SBLC is ambiguous or could be read in two ways, the ambiguities are construed or resolved against the issuer  

[[3]]: ISBP 821 Paragraph A3 provides further that if an LC requires a certification, it needs to be signed, but it does not specify that a public official must sign it  

[[4]]: An argument can be made, given the brevity with which UCP600 details requirements for SBLCs, that the ISP should be read as supplementing the UCP as standard banking practice when an SBLC is involved