In re Coral Petroleum, Inc.

Tradax Petroleum America, Inc. (Tradax) contracted to sell 31,000 barrels of West Texas Intermediate crude oil, a sweet oil, to Coral Petroleum, Inc. (Coral). As required in the parties’ contract, Coral obtained a standby letter of credit from French American Banking Corporation (the bank) (defendant). At Coral’s direction, the letter of credit contained various conditions on Tradax’s drawing on the letter, including that Tradax was required to produce a signed letter that it had shipped the crude oil. However, Coral made a mistake in transcribing another one of the conditions, requiring a shipper’s transfer listing indicating transfer of 31,000 barrels of “WTNM SO or SR,” a sour oil, rather than the sweet crude oil to which the parties had agreed. Tradax did not catch this error upon its review of the draft letter. Subsequently, Coral filed for Chapter 11 bankruptcy and did not pay for the oil that Tradax delivered. Tradax attempted to draw on the letter of credit and presented to the bank, among other things, a shipper’s transfer listing showing that it delivered 31,000 barrels of sweet oil. However, because of Coral’s drafting mistake, this listing was different than that required for the letter of credit. As a result, the bank dishonored the draw. Tradax filed a complaint in bankruptcy court. The bankruptcy court ruled in the bank’s favor, finding that Tradax did not strictly comply with the conditions in the letter of credit. The district court affirmed. Tradax appealed.