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NY Practice Guide: Business and Commercial
Copyright 2017, Matthew Bender & Company, Inc., a member of the LexisNexis Group.

3-16 NY Practice Guide: Business and Commercial 16.syn


Letters of Credit


Sandra Stern, Esq.;Scott J. Giordano, Esq.

Chapter Summary


This chapter guides the practitioner in advising on, or drafting documents or litigating disputes relating to, letter of credit transactions. The chapter outlines governing statutes, various types of letters of credit, governing statutes, rules and regulations, the parties to the letter of credit transaction. It also guides the practitioner through the process of drafting the application and letter of credit, the issuance and amendment of the letter of credit, transfer and assignment, the review and handling of documents presented for payment, and the issuer's right to reimbursement. Next, the chapter outlines problems in performance of the letter of credit transaction, including non-conforming documents, wrongful dishonor, wrongful honor, insolvency of one of the parties, injunctions, attachments and interpleaders. Then, it provides illustrative letter of credit forms, including letter of credit applications, and commercial letter of credit, standby letter of credit, negotiation letter of credit, transferable letter of credit, advice of credit and notice of assignment forms.

The chapter defines a letter of credit as an engagement by one party, the issuer, to pay money to a second, the beneficiary, for the account of a third, the ''applicant'', noting that ''two party'' letters of credit, in which the issuer and the applicant are the same are frequently issued today by financial institutions. The chapter covers governing law sources, primarily Article 5 and related articles of the UCC, as well as 1) the Uniform Customs and Practice for Document Credits (U.C.P.), 2) federal and state banking regulations relating, among other things, to capitalization requirements and blocking regulations, and 3) foreign law.

The chapter outlines the parties to the letter of credit, including: 1) the applicant--the party that requests the letter of credit; 2) the advising or notifying bank--the party that advises or notifies the beneficiary of the issuance of the letter of credit; 3) the assignee of proceeds--the party to whom the beneficiary has assigned some or all of the proceeds under a letter of credit; 4) the beneficiary--the party entitled to draw or demand payment under the letter of credit; 5) the confirming bank--a bank that holds itself out to the beneficiary as responsible for performance under the letter of credit; 6) the issuer (also referred to the ''opening bank'' or ''issuing bank'' when the bank is the issuer)--the party who pays, or accepts a draft or demand for payment presented by the beneficiary, or assumes a deferred obligation after ascertaining that the documents submitted by the beneficiary conform to the terms and conditions of the letter of credit; and 7) other parties, including the negotiating bank, nominated bank and transferee.

The chapter outlines the types of letters of credit used in commercial transactions, including 1) irrevocable vs. revocable credits, 2) commercial credit, 3) standby credit, 4) clean credit, 5) straight credit, 6) negotiation credit, 7) transferable credit, 8) revolving credit, and 9) red cloud credit. Finally, the chapter outlines the basic letter of credit transactions, including, 1) commercial credits and sale of goods, typically used in international sales transactions, involving various ways to shift the burden of risk of non-performance through cash sales, open credit sales, documentary drafts, commercial documentary letter of credit; and 2) standby credits to secure performance of services and repayment of financial obligations that operate in effect as substitutes for surety bonds and payment guarantees and include performance credits and credits to secure financial obligations.

New York Practice Guide: Business & Commercial (Matthew Bender) provides step-by-step guidance on selecting, forming, managing, and dissolving a New York business entity, through a combination of analysis, practical advice, forms, and references to more in-depth research. This publication includes coverage of the impact of the UCC on business entities but also addresses broader business obligations of business entities. Each chapter contains four parts: an analytical Legal Background section, a Practice Guide, a collection of Forms, and a Reference Guide.


two party letters of credit,letter of credit,applicant,advising bank,notifying bank,assignee of proceeds,beneficiary,confirming bank,issuer,irrevocable,revocable,commercial,standby,clean,straight,negotiation,transferable,revolving,red cloud,letter of credit


For an overview and analysis of specific business entities, as well as practice guides and forms for use in forming these entities, see Part I, Choosing the Business Entity.

For other topics, as well as practice guides and forms, related to conducting a business entity, see Ch. 9, Securities Offerings, Ch. 10, Franchising, Ch. 11, Financing the Business, Ch. 12, Guaranties of Financial Obligations: Preparation and Enforcement, Ch. 13, Contracting with the State and Local Governments, Ch. 14, Purchase and Sale of a Business, Ch 15, Business Torts, Ch. 17, Sales of Goods Under the Uniform Commercial Code, Ch. 18, Bulk Transfers Under The Uniform Commercial Code, Ch. 19, Personal Property Leasing: Article 2-A of the Uniform Commercial , Ch. 20, Secured Transactions, Ch. 24, Commercial Arbitration, Ch. 25, The Employment Relationship, Ch. 25A, Workers' Compensation, Ch. 26, Employment Discrimination; Ch. 30, Liquor Licensing; Ch. 32, Bankruptcy.


For a thorough analysis of letters of credit, with line-by-line expert analysis of a sample letter of credit application form, see Letters of Credit (Matthew Bender).

For commentary, complete forms and specific clauses for use in transactions involving letters of credit, see Warren's Forms of Agreements (Matthew Bender), Ch. 34, Letters of Credit.

For additional coverage of New York topics relating to business entities generally, along with detailed checklists and numerous practice pointers, see LexisNexis AnswerGuide New York Business Entities (Matthew Bender), Ch. 13, Buying and Selling Business Entities or Assets.

For additional guidance on legal and tax issues involved in forming, operating or dissolving a business entity in New York, see White, New York Business Entities (Matthew Bender).
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