DOCTRINE OF STRICT COMPLIANCE

Published — February 7, 2021

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

Under Doctrine of Strict Compliance, the documents tendered by the seller/beneficiary must strictly conform to the terms of the Letters of Credit.
The tender of documents must include all documents required by the letter. It is not a question of whether or not it is fair or equitable to require submission of documents but whether or not the documents were agreed upon.
Correspondent bank which departs from what has been stipulated under the Letters of Credit acts on its own risk and may not thereafter be able to recover from the buyer or the issuing bank, as the case may be, the money thus paid to the beneficiary.

In commercial transactions involving letters of credit, the documents tendered must strictly conform to the terms of the letter of credit. This is the rule of strict compliance.

In the case of Feati Bank & Trust Company vs. The Court of Appeals (G.R. No. 94209, April 30, 1991) the Court explained that:

Letters of credit are to be strictly complied with which documents, and shipping documents must be followed as stated in the letter. There is no discretion in the bank or trust company to waive any requirements. The terms of the letter constitute an agreement between the purchaser and the bank.

Since a bank deals only with documents, it is not in a position to determine whether or not the documents required by the letter of credit are material or superfluous. The mere fact that the document was specified therein readily means that the document is of vital importance to the buyer.

Accordingly, under Doctrine of Strict Compliance, the documents tendered by the seller/beneficiary must strictly conform to the terms of the Letters of Credit. The tender of documents must include all documents required by the letter. It is not a question of whether or not it is fair or equitable to require submission of documents but whether or not the documents were agreed upon.

Thus, a correspondent bank which departs from what has been stipulated under the Letters of Credit acts on its own risk and may not thereafter be able to recover from the buyer or the issuing bank, as the case may be, the money thus paid to the beneficiary.

Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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Under Doctrine of Strict Compliance, the documents tendered by the seller/beneficiary must strictly conform to the terms of the Letters of Credit.

The tender of documents must include all documents required by the letter. It is not a question of whether or not it is fair or equitable to require submission of documents but whether or not the documents were agreed upon.

Correspondent bank which departs from what has been stipulated under the Letters of Credit acts on its own risk and may not thereafter be able to recover from the buyer or the issuing bank, as the case may be, the money thus paid to the beneficiary.

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