Comment on the Windsor Township Case of the Lost Original LC

The case of Windsor Township v. Tompkins Financial Corp. 2022 WL 10218661, No. 592 C.D. 2021 (Pa. Commw. Ct. Oct. 18, 2022) holds that if the issuer’s letter of credit calls the original letter of credit instrument, among other documents, to be presented to effect a draw, the issuer may dishonor a presentation if a copy of the original letter of credit is presented instead.

The primary reason for issuers requiring originals of their letters of credit to be presented to effect a drawing is historically grounded on the view that it shows the issuer that it is dealing with the true beneficiary and not someone impersonating the beneficiary and making a fraudulent draw. The reason for this approach has more traction for commercial letters of credit, LCs that are negotiable, and cross-border LCs.

It makes less sense to require presentation of an original LC for straight domestic standby LCs, especially in instances where the beneficiary is known to the parties or the transaction is a structured or lawyered financing. In the case of Windsor Township, the beneficiary was a local municipal entity, presumably known to the issuing bank.