ARTICLE 5
LETTERS OF CREDIT

Table of Contents

Sec. 42a-5-102. Definitions.
Sec. 42a-5-103. Scope.
Sec. 42a-5-108. Issuer's rights and obligations.

      Sec. 42a-5-102. Definitions. (a) In this article:

      (1) "Adviser" means a person who, at the request of the issuer, a confirmer or another adviser, notifies or requests another adviser to notify the beneficiary that a letter of credit has been issued, confirmed or amended.

      (2) "Applicant" means a person at whose request or for whose account a letter of credit is issued. The term includes a person who requests an issuer to issue a letter of credit on behalf of another if the person making the request undertakes an obligation to reimburse the issuer.

      (3) "Beneficiary" means a person who under the terms of a letter of credit is entitled to have its complying presentation honored. The term includes a person to whom drawing rights have been transferred under a transferable letter of credit.

      (4) "Confirmer" means a nominated person who undertakes, at the request or with the consent of the issuer, to honor a presentation under a letter of credit issued by another.

      (5) "Dishonor" of a letter of credit means failure timely to honor or to take an interim action, such as acceptance of a draft, that may be required by the letter of credit.

      (6) "Document" means a draft or other demand, document of title, investment security, certificate, invoice or other record, statement or representation of fact, law, right or opinion (A) which is presented in a written or other medium permitted by the letter of credit or, unless prohibited by the letter of credit, by the standard practice referred to in subsection (e) of section 42a-5-108, and (B) which is capable of being examined for compliance with the terms and conditions of the letter of credit. A document may not be oral.

      (7) "Honor" of a letter of credit means performance of the issuer's undertaking in the letter of credit to pay or deliver an item of value. Unless the letter of credit otherwise provides, "honor" occurs (A) upon payment, (B) if the letter of credit provides for acceptance, upon acceptance of a draft and, at maturity, its payment, or (C) if the letter of credit provides for incurring a deferred obligation, upon incurring the obligation and, at maturity, its performance.

      (8) "Issuer" means a bank or other person that issues a letter of credit, but does not include an individual who makes an engagement for personal, family or household purposes.

      (9) "Letter of credit" means a definite undertaking that satisfies the requirements of section 42a-5-104 by an issuer to a beneficiary at the request or for the account of an applicant or, in the case of a financial institution, to itself or for its own account, to honor a documentary presentation by payment or delivery of an item of value.

      (10) "Nominated person" means a person whom the issuer (A) designates or authorizes to pay, accept, negotiate or otherwise give value under a letter of credit, and (B) undertakes by agreement or custom and practice to reimburse.

      (11) "Presentation" means delivery of a document to an issuer or nominated person for honor or giving of value under a letter of credit.

      (12) "Presenter" means a person making a presentation as or on behalf of a beneficiary or nominated person.

      (13) "Successor of a beneficiary" means a person who succeeds to substantially all of the rights of a beneficiary by operation of law, including a corporation with or into which the beneficiary has been merged or consolidated, an administrator, executor, personal representative, trustee in bankruptcy, debtor in possession, liquidator and receiver.

      (b) Definitions in other articles applying to this article and the sections in which they appear are:

      "Accept" or "acceptance". Section 42a-3-409.
      "Value". Sections 42a-3-303, 42a-4-211.

      (c) Article 1 contains certain additional general definitions and principles of construction and interpretation applicable throughout this article.

      (1959, P.A. 133, S. 5-102; P.A. 96-198, S. 2; P.A. 05-109, S. 34.)

      History: P.A. 96-198 entirely replaced former provisions re scope of article with provisions re definitions, in part a restatement of Sec. 42a-5-103, revised to 1995; P.A. 05-109 amended Subsec. (a) by deleting definitions of "good faith" and "record" and making technical changes to conform to revisions made to article 1 by the same act.

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      Sec. 42a-5-103. Scope. (a) This article applies to letters of credit and to certain rights and obligations arising out of transactions involving letters of credit.

      (b) The statement of a rule in this article does not by itself require, imply or negate application of the same or a different rule to a situation not provided for, or to a person not specified, in this article.

      (c) With the exception of this subsection, subsections (a) and (d) of this section, subdivisions (8) and (9) of subsection (a) of section 42a-5-102, subsection (d) of section 42a-5-106 and subsection (d) of section 42a-5-114, and except to the extent prohibited in section 42a-1-302 and subsection (d) of section 42a-5-117, the effect of this article may be varied by agreement or by a provision stated or incorporated by reference in an undertaking. A term in an agreement or undertaking generally excusing liability or generally limiting remedies for failure to perform obligations is not sufficient to vary obligations prescribed by this article.

      (d) Rights and obligations of an issuer to a beneficiary or a nominated person under a letter of credit are independent of the existence, performance or nonperformance of a contract or arrangement out of which the letter of credit arises or which underlies it, including contracts or arrangements between the issuer and the applicant and between the applicant and the beneficiary.

      (1959, P.A. 133, S. 5-103; May Sp. Sess. P.A. 92-11, S. 27, 70; P.A. 96-198, S. 3; P.A. 05-109, S. 35.)

      History: May Sp. Sess. P.A. 92-11 amended Subsec. (3) to replace "Section 42a-3-410" as the statutory reference for the definition of "Accept" or "Acceptance" with "Section 41a-3-409" (Revisor's note: The incorrect reference to Sec. "41a-3-409" was changed editorially by the Revisors to "42a-3-409"); P.A. 96-198 entirely replaced former provisions re definitions of terms with provisions re scope of article, in part a restatement of Sec. 42a-5-102, revised to 1995; P.A. 05-109 amended Subsec. (c) by making a technical change and replacing references to Secs. 42a-5-102(a)(10) and 42a-1-102(3) with references to Secs. 42a-5-102(a)(8) and 42a-1-302 to conform to revisions made to article 1 by the same act.

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      Sec. 42a-5-108. Issuer's rights and obligations. (a) Except as otherwise provided in section 42a-5-109, an issuer shall honor a presentation that, as determined by the standard practice referred to in subsection (e) of this section, appears on its face strictly to comply with the terms and conditions of the letter of credit. Except as otherwise provided in section 42a-5-113, and unless otherwise agreed with the applicant, an issuer shall dishonor a presentation that does not appear so to comply.

      (b) An issuer has a reasonable time after presentation, but not beyond the end of the seventh business day of the issuer after the day of its receipt of documents: (1) To honor, (2) if the letter of credit provides for honor to be completed more than seven business days after presentation, to accept a draft or incur a deferred obligation, or (3) to give notice to the presenter of discrepancies in the presentation.

      (c) Except as otherwise provided in subsection (d) of this section, an issuer is precluded from asserting as a basis for dishonor any discrepancy if timely notice is not given, or any discrepancy not stated in the notice if timely notice is given.

      (d) Failure to give the notice specified in subsection (b) of this section or to mention fraud, forgery or expiration in the notice does not preclude the issuer from asserting as a basis for dishonor fraud or forgery as described in subsection (a) of section 42a-5-109 or expiration of the letter of credit before presentation.

      (e) An issuer shall observe standard practice of financial institutions that regularly issue letters of credit. Determination of the issuer's observance of the standard practice is a matter of interpretation for the court. The court shall offer the parties a reasonable opportunity to present evidence of the standard practice.

      (f) An issuer is not responsible for: (1) The performance or nonperformance of the underlying contract, arrangement or transaction; (2) an act or omission of others; or (3) observance or knowledge of the usage of a particular trade other than the standard practice referred to in subsection (e) of this section.

      (g) If an undertaking constituting a letter of credit under subdivision (9) of subsection (a) of section 42a-5-102 contains nondocumentary conditions, an issuer shall disregard the nondocumentary conditions and treat them as if they were not stated.

      (h) An issuer that has dishonored a presentation shall return the documents or hold them at the disposal of, and send advice to that effect to, the presenter.

      (i) An issuer that has honored a presentation as permitted or required by this article: (1) Is entitled to be reimbursed by the applicant in immediately available funds not later than the date of its payment of funds; (2) takes the documents free of claims of the beneficiary or presenter; (3) is precluded from asserting a right of recourse on a draft under sections 42a-3-414 and 42a-3-415; (4) except as otherwise provided in sections 42a-5-110 and 42a-5-117, is precluded from restitution of money paid or other value given by mistake to the extent the mistake concerns discrepancies in the documents or tender which are apparent on the face of the presentation; and (5) is discharged to the extent of its performance under the letter of credit unless the issuer honored a presentation in which a required signature of a beneficiary was forged.

      (1959, P.A. 133, S. 5-108; P.A. 96-198, S. 8; P.A. 05-109, S. 36.)

      History: P.A. 96-198 entirely replaced former provisions re notation credit and exhaustion of credit with provisions re rights and obligations of an issuer, in part a restatement of Secs. 42a-5-109(1) and (2), 42a-5-112(1) and (2), and 42a-5-114(1) and (3), revised to 1995; P.A. 05-109 amended Subsec. (g) by replacing reference to Sec. 42a-5-102(a)(10) with reference to Sec. 42a-5-102(a)(9) to conform to revisions made to article 1 by the same act.

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