Letters of Credit

Introduction

This survey concentrates on the most significant letter of credit (“LC”)[[1]] issues addressed in cases decided primarily in the United States during 2024,[[2]] comments on the status of the 2022 U.C.C. Amendments affecting Article 5,[[3]] and highlights developments in electronic and digital documents in LC transactions.

This survey proceeds in five sections: (1) developments regarding the 2022 U.C.C. Amendments and the modernization of electronic/digital documents regarding LC practices; (2) threshold issues addressed by courts, such as whether an undertaking is an LC, whether U.C.C. Article 5 applies, questions of jurisdiction, sovereign immunity, governing law, venue, and the obligation to post or right to draw on an LC; (3) pre-honor LC cases, such as issuer dishonor due to noncompliance of documents presented,[[4]] proper and timely notice of dishonor,[[5]] draws made after expiration,[[6]] fraud justifying dishonor, injunction against honor,[[7]] sanctions and regulatory orders preventing honor,[[8]] force majeure events affecting the issuing bank,[[9]] assertion of set-off rights by the issuing bank, improper assignment or transfer by the beneficiary,[[10]] statute of limitations bar,[[11]] and other causes claimed to justify or require dishonor, usually in the context of claims of injunction, wrongful dishonor,[[12]] or breach of contract of the LC brought by the beneficiary; (4) post-honor cases of reimbursement claims, claims of wrongful honor, and disputes between the beneficiary and the applicant based on breach of the underlying contract supported by the LC, breach of warranty under U.C.C. section 5-110, subrogation under U.C.C. section 5-117, and other legal theories, such as unjust enrichment and conversion; and (5) LC cases worthy of note, including liability of the advising and confirming banks based on representations made to their customers, supersedeas LCs, LCs in bankruptcy, foreign ISP-governed LCs, and LC scams.