dissenting:
The New York Court of Appeals in Fair Pavilions, Inc. v. First National City Bank, 19 N.Y.2d 512, 518, 281 N.Y.S.2d 23, 27, 227 N.E.2d 839, 842 (1967), said that if a clause of a standby letter of credit were construed so as to “place one party at the mercy of another,” it “is against the general policy of the law.” I agree. That court also noted that when the bank had neither collateral nor a customer financially able to respond, it was “defending in its own interest.” Id. at 516, 281 N.Y.S.2d 23, 227 N.E.2d 839. This would put in issue the bank’s good faith in refusing to pay the beneficiary under the letter of credit.
Here the bank was asked to give a “guarantee” to the Venezuelan seller, CMA, of a particular contract numbered 084 for the purchase of $9 million worth of rice. What it gave was a purported standby letter of credit under which, according to the interpretation of my brothers, the buyer was able without reason to veto the payment by simply failing to provide a “statement of facts.”
It is true that standby letters of credit are now used not only to pay when there is performance but also to pay up when there is default in performance. I do not doubt that a letter of credit may be used to provide credit in lieu of a cash deposit against the contingency of default. In such case I think that what should be required is a simple notice from the beneficiary that the stipulated default has occurred or some objective statement of a third party of the event of default.1 Otherwise what passes for cash has no resemblance to cash. The issuer bank should know precisely what the documents are that it requires to be presented without cavil or controversy. The beneficiary should know that it will be paid if default should occur without gloss or independent review by an issuer who may, by then, not be eager to pay up. That is *51presumably why the UCP provides that a bank “must determine, on the basis of the documents alone, whether to claim that payment, acceptance or negotiation was not effected in accordance with the terms and conditions of the credit.” UCP Article 8 (emphasis added). As a commentator has noted:
The financial value of the letter of credit promise is predicated upon its degree of legal certainty.
B. Kozolchyk, supra n.l, § 18.04[1] at 394-95.
In issuing a letter of credit allowing a veto by its customer, the bank took neither collateral from its customer, Pan American, nor even a personal indemnity from Pan American’s principal. It has been asserted by affidavit on the summary judgment motion that Pan American had only two officers and employees, no apparent credit line except from Mellon, no visible capital, consequential resources or active accounts, and was operated from the office of its lawyer. We must take these assertions as unrebut-ted for purposes of summary judgment. In sum, when payment on the letter of credit was demanded, the bank was “defending in its own interest.”
That a hoax was perpetrated on CMA is obvious. It was led to believe that it had the guaranty of an American bank when, in fact, it had nothing, according to the majority.
Specifically Irrevocable Letter of Credit 5171 made $963,000 available to CMA until April 30,1974 against its sight draft accompanied by the following documents:
Beneficiary’s signed statement in duplicate that Pan American Fruit & Produce Corp. did not perform in accordance with contract 084 for the purchase/sale of 30,-000 M.T. Paddy Rice in accordance with conditions agreed upon by buyers & sellers. Statement of facts by beneficiary and accountee.
(Emphasis added.)
There is no explanation of what “statement of facts” means. It does not require, in terms, an admission of default by the accountee but simply its version of “the facts” whatever they may be.
On March 8, 1974 the contract for sale of paddy rice was approved by CMA and signed the same day by Sr. Gonzalo Sanchez Valera as agent for Pan American. On the very same day, March 8, as it was made to appear later, Pan American purported to revoke Valera’s agency.
Though it is now contended that Valera’s agency was revoked effectively on March 8, CMA was permitted on March 13 to countersign the very contract which Valera had signed on behalf of Pan American. Contract 084 explicitly refers to Valera as the authorized signatory for Pan American as the record shows.
Contract 084 required an irrevocable letter of credit for the full purchase price to be posted within five days of the signing of the contract. Since the bank was purporting to indemnify CMA for a failure of performance of a particular contract, 084, we may assume, on a motion for summary judgment, that it had a copy of the contract which would show Valera as the signatory on behalf of CMA. Thus Valera’s agency was in place, together with his signature, so far as Mellon was concerned. Pan American failed to furnish the required letter of credit.
On June 5, 1974 Banco La Guaría Inter-nacional, designated by Mellon as its advising bank, wrote to Mellon requesting payment and enclosing:
1. Sight draft for U.S. $963,000.00.
2. Statement from CMA evidencing that Pan American has not complied with the requirements of the Contract guaranteed by said Letter of Credit.
3. Statement from Valera evidencing that his principal has not complied with the clauses of Contract No. 084.
4. Photocopy duly legalized of the document by which Pan American confers *52a power of attorney on Mr. Gonzalo Sanchez Valera.2
5. Photostat of the relative contract.3
On June 11 Mellon rejected the documents and dishonored the draft assigning as its sole reason that its customer had informed it that the agency had been revoked even before CMA had signed Contract 084. Mellon did not assert that the agency power furnished to it was insufficient on its face to permit the agent to give the “statement of facts” required. Let us look at this agency.
The power of attorney on its face gave Valera power not only to sign contracts on behalf of Pan American but also to “represent us and our company [Pan American] before the official and private organizations of the Republic of Venezuela.” There was no express limitation on the scope of his authority to “represent” Pan American before CMA. And it was CMA which was to present a document containing a “statement of facts” to accompany its draft on Mellon. When on April 29 Valera appeared before the legal department of CMA he was asked to submit an affidavit confirming Pan American’s default in failing to provide the irrevocable letter of credit for the full purchase price.
Instead, Valera called Heller, the principal in Pan American, who told Valera to request CMA to be patient and not to take any action with regard to the initial letter of credit furnished as a guaranty with the assurance that the letter of credit covering the purchase price in the sum of U.S. $9,630,000 would be opened within the following ten days.
Valera informed CMA, still as agent for Pan American pursuant to its direction, that the expiration date of the standby letter of credit would be extended past April 30 so that CMA would not be prejudiced by the short delay. Accordingly, Val-era submitted an affidavit to CMA on April 29, 1974 simply “indicating that Pan American had failed to comply with Contract 084 as a declaration of fact” (141a). The trier of fact could find that Valera was acting as agent in both situations when on the same day at the end of April he procured an extension for Pan American and acknowledged also that it was in actual default, and thus the trier could find that his agency extended beyond March 8, the alleged date of revocation. Valera had not been informed that his agency had allegedly been revoked the day he signed the contract, nor was it brought home to the negotiating persons in CMA; and Valera was still being used as agent by Pan American after March 8.
In spite of the rule of the International Chamber of Commerce that the issuer of a letter of credit may not go outside the documents presented, UCP Article 8, Mellon did just that, and one may wonder whether that was not simply because Mellon was “defending in its own interest.” That suspicion is strengthened by the circumstance that, already having gone beyond the documents, the bank then failed to ask Pan American the natural question whether it, as principal, intended to supply the “statement of facts” required to CMA if Valera no longer had the power to do so as its agent.
I suppose that the essence of my disagreement with the majority is its contention that CMA relied on the “good faith” of the buyer since “the contract did not specify any circumstances under which the buyer would be required to issue a statement.” In point of fact, the seller did not know the buyer, refused to rely on its credit or good faith and requested a guaranty. It apparently did know Valera, the appointed agent. Moreover, the suggestion that the beneficiary could have sued the buyer to compel him to file a paper with the bank is so *53contrary to the simple pattern of letter of credit law that the suggestion, even if it were practical, has serious overtones that are undesirable. With the speed essential to letters of credit one would hardly suppose that an instrument contemplating court action for its effectiveness is a true letter of credit.
Though I have no desire to change the austere nature of letter of credit law, I believe that Mellon, in this case, has issued such an unusual letter of credit that the language must be construed against it. If, as I believe, the letter of credit was, in the spirit of Fair Pavilions, supra, against public policy, and even more so because it was permitted to be used in a flim-flam game in international trade, the question is what to do about it.
One cannot strike it down entirely, for that would disadvantage the beneficiary who did not write it. This leaves us with the choice (1) of so interpreting it that it will not allow an absolute veto by the buyer, or (2) of holding that it is not a true letter of credit at all but is rather a guaranty-
There is precedent in this court for a fair construction of the meaning of “statement of facts” so as to justify interpreting the phrase against the bank. As Judge J. Joseph Smith wrote in Venizelos, S.A. v. Chase Manhattan Bank, 425 F.2d 461, 466 (2d Cir. 1970):
Where a letter of credit is fairly susceptible of two constructions, one of which makes it fair, customary and one which prudent men would naturally enter into, while the other makes it inequitable, the former interpretation must be preferred to the latter, and a construction rendering the contract possible of performance will be preferred to one which renders its performance impossible or meaningless. See Liberty Nat’l Bank & Trust Co. v. Bank of American Nat’l Trust & Savings Ass’n, 218 F.2d 831, 840 (10 Cir. 1955). Moreover, as between the beneficiary of a letter of credit and the issuer (or in this case, Chase, since confirmers are to be treated as issuers under New York commercial law) if ambiguity exists, the words are taken as strongly against the issuer as a reasonable reading will justify. Lamborn v. National Park Bank of New York, 212 App.Div. 25, 208 N.Y.S. 428 (1925), aff’d 240 N.Y. 520, 148 N.E. 664.
I would take the words “statement of facts” “as strongly against the issuer as a reasonable reading will justify.” Id. Such a reading would be that “statement of facts” means what it says — that it requires simply a statement of what had occurred and not a confession of default. Valera’s authority was abundant on its face to give such a factual statement to CMA, for he was entitled to “represent” Pan American before CMA. When CMA obtained the document from Valera, the agent of Pan American, it had the right to present it to the bank as an accompanying document to the draft, for it was CMA, the beneficiary, and not Pan American which was to present the documents to the bank. In the circumstances there was nothing on the papers to indicate in the slightest degree that Valera’s agency had been revoked, and the bank under familiar letter of credit law was not permitted to inquire beyond the face of the documents. Thus, under this first approach, the bank is clearly not entitled to summary judgment.
A fair alternative is to hold that to give an absolute veto to the person on whose behalf the standby letter of credit was given, even though he concededly failed to perform, is so contrary to the conventional letter of credit usage that the paper loses the benefit of the strict rules applicable to letters of credit. The theory that a letter of credit is treated in law differently from a guaranty is simple enough — that it is a separate contract between issuer and beneficiary to which the person whose performance is guaranteed is not a party. But when that person has the power of arbitrary veto, the instrument is a trilateral rather than a bilateral instrument and is more like a guaranty than like the conventional standby letter of credit to which we have become accustomed in the past few decades, along with its tight rules.
*54Moreover, the phrase “statement of facts” is on its face ambiguous. Does it require a “statement of facts” from the aecountee agreeing with the statement of the beneficiary? Could the aecountee provide its own “statement of facts” disagreeing with the statement of the beneficiary? 4 What would happen then? It is possible to argue that each differing version of “the facts” would have to be examined by the bank and a decision made whether the beneficiary or the aecountee was right.
Yet that is hardly the duty or the prerogative of a bank which issues a letter of credit. And that is another reason why this is not a letter of credit in the conventional sense. Once the issuer bank has to look outside the documents tendered or to meet its obligations to the beneficiary only upon the sufferance of the defaulter, the document, no matter how labeled, is not a letter of credit.
There is precedent for treating a paper which on its face purports to be a “letter of credit” as a guaranty. Wichita Eagle and Beacon Pub. Co., Inc. v. Pacific National Bank of San Francisco, 493 F.2d 1285 (9th Cir. 1974). The bank had issued a “letter of credit” requiring payment to a lessor upon default in the construction of a parking garage by the lessee. In holding that the agreement, though called a “letter of credit” on its face, was a guaranty rather than a valid letter of credit, the Ninth Circuit emphasized that the agreement did not require payment upon mere presentation of documents, that it suffered from “loose terms” [cf. “statement of facts”], and that the lessee was authorized to terminate the agreement merely upon representing to the bank that the lessee had been refused a building permit. The control by the customer, the ambiguity, and the examination by the issuer of facts not contained in the documents themselves were significant in Wichita Eagle as they are here. In that case, the Ninth Circuit ultimately held for the beneficiary after treating the “letter of credit” as a guaranty.
I would adopt the rationale of the Ninth Circuit which stated:
It would hamper rather than advance the extension of the letter of credit concept to new situations if an instrument such as this were held to be a letter of credit. The loose terms of this instrument invited the very evil that letters of credit are meant to avoid — protracted, expensive litigation. If the letter of credit concept is to have value in new situations, the instrument must be tightly drawn to strictly and clearly limit the responsibility of the issuer.
Id. at 1286-87.
The stricture is even more apposite in the present case, for this document may well have become an instrument of fraud. What the Venezuelans reasonably took to be a bank guaranty was simply a device that enabled Pan American to peddle its contract in the market without fear of consequence.
If we view this agreement as a guaranty, establishment of the failure to supply the irrevocable letter of credit for the full purchase price would make the bank liable. Its liability for the total amount might be subject, however, to a defense that the provision for liquidated damages was, in the circumstances, a penalty or to such other defenses as may be available to a guarantor of performance.
The affirmance of the summary judgment, in my view, diminishes the reputation of the American banking community in international trade. If a foreign business cannot rely on a bank guaranty through a “letter of credit” when, though default has occurred, it is denied recovery without trial in American courts, the American image is tarnished. “American credibility in foreign communities” is injured. See KMW International v. Chase Manhattan Bank, 606 F.2d 10, 17 (2d Cir. 1979).
I have deep respect for the sophistication in financial matters of my brothers. I am particularly reluctant, nevertheless, to subscribe to such an unfortunate result since it will only serve, I am afraid, to encourage *55continued loose practice in the future, perhaps to the detriment of the American competitive position in world banking.
I would reverse this summary judgment and remand for further proceedings.
. See, e. g., Barclays Bank D.C.O. v. Mercantile National Bank, 481 F.2d 1224, 1228 n.5 (5th Cir. 1973), cert. dismissed, 414 U.S. 1139, 94 S.Ct. 888, 39 L.Ed.2d 96 (1974); Victory Carriers, Inc. v. United States, 467 F.2d 1334, 1339, 199 Ct.Cl. 410 (1972); Intraworld Industries, Inc. v. Girard Trust Bank, 461 Pa. 343, 336 A.2d 316, 319-20 n.7 (1975); American Empire Ins. Co. v. Hanover National Bank of Wilkes-Barre, 409 F.Supp. 459, 461 n.l (M.D.Pa.1976); Dynamics Corp. of America v. Citizens and Southern National Bank, 356 F.Supp. 991, 994 n.2 (N.D.Ga.1973). And see illustrations in B. Kozolchyk, Commercial Letters of Credit in the Americas, § 1.02[3] at 24-25 (1966). In a standby letter of credit “the required document is usually nothing more than a certificate created by the beneficiary.” Jack B. Justice, Letters of Credit: Expectations and Frustrations — Part I, 94 Banking L.J. 424, 429 (1977).
While a letter of credit must conform to the specifications of the bank’s customer, there is no law that compels a bank to issue such an ambiguous or illusory document. Indeed, paragraph “d” of the UCP’s General Provisions and Definitions provides: “Credit instructions and the credits themselves must be complete and precise and, in order to guard against confusion and misunderstanding, issuing banks should discourage any attempt by the applicant for the credit to include excessive detail.” Henry Harfield adds; “This word of caution should be amplified in its application to ‘guaranty credits’ and their ilk.” — a prophetic insight. Har-field, Code, Customs and Conscience in Letter of Credit Law, 4 U.C.C.L.J. 7, 15 (1971).
. This document reads as follows:
Gentlemen:
We are pleased to inform you hereby that we have conferred a power of attorney to Mr. Gonzalo Sanchez Valera, Identity Card (Venezuelan) No. 163598, by which he is entitled to sign contracts and represent us and our
company before the official and private organizations of the Republic of Venezuela. Very truly yours,
Pan American Fruit & Produce Corp.
. The photostat, presumably, had the signature of Valera on it.
. Asserting, for instance, that an oral extension of time had been granted by the beneficiary.