Letters of Credit

Article 5 of the Uniform Commercial Code governs transactions involving the issuance of letters of credit. Such letters of credit are generally issued when a party (the “applicant”) applies for credit in a transaction of some sort with a third party (the “beneficiary”). The bank will issue a letter of credit to the beneficiary prior to the transaction. This letter is a definite undertaking by the bank to honor the letter of credit at the time the beneficiary presents this letter. Article 5 governs issuance, amendments, cancellation, duration, transfer, and assignment of letters of credit. It also defines the rights and obligations of the parties involved in the issuance of a letter of credit.

Inside Letters of Credit